Posted by on October 2, 2017 11:20 pm
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Categories: Business Causes of the United States housing bubble Down payment Economy Economy of the United States Fannie Mae Finance Foreclosures Georgia State University Government policies and the subprime mortgage crisis Government-sponsored enterprise Housing Bubble Housing Market Lennar Lennar Corporation money Mortgage industry of the United States Mortgage loan Student Loans Subprime mortgage crisis Urban Studies Institute Urban Studies Institute at Georgia State University Wall Street Journal

Homebuilder Lennar has come up with a genius strategy to partially eliminate the massive bubble in student loans that has crippled recent graduates and forced them into a life devoid of the American dream of home ownership…it’s a “two birds with one stone” kind of solution.  Yes, rather than struggle to make those monthly student loan payments, Lennar has developed an “innovative mortgage” designed to allow millennials the opportunity to convert their student debt into an “investment” in America’s “Housing Bubble 2.0.”

So how does it work?  According to the Wall Street Journal, Lennar is set to introduce the new promotion tomorrow that will make a payment on a buyer’s student loans, equal to 3% of their purchase price up to $13,000, in return for purchasing a new Lennar home…it’s as simple as that.

Student-loan debt has been an obstacle for many potential home buyers. Now, Lennar Corp. is trying to do something about it.

A subsidiary called Eagle Home Mortgage plans to introduce on Tuesday a program under which Miami-based Lennar will pay off a significant chunk of the student loan of a borrower who purchases a home from them.

Housing observers said other builders are likely to look to mimic the program, which could help lure more of the critical first-time-buyer segment into home purchases.

“Obviously there’s a benefit to bringing more people into the home buying market. We’re trying to design something here that supports affordability and creates that path to homeownership,” said Doug Cropsey, a senior vice president at Eagle.

Lennar will make a payment to a buyer’s student loans of as much as 3% of the purchase price, up to $13,000. The contribution doesn’t directly increase the purchase price of the home or add to the balance of the loan.

Meanwhile, and to our complete ‘shock’ no less, the WSJ also explains that Fannie Mae, a government sponsored enterprise, has agreed to back the new “innovative” loans from Lennar.  All of which means that millennials will effectively have their private student loans, which can’t even be expunged in bankruptcy, converted into brand new mortgage debt, backed by the full faith and credit of U.S. taxpayers, that will be socialized when the current housing bubble inevitably collapses yet again.

Consumer advocates are wary the program sounds too good to be true. They point to builder incentive programs during the last boom that helped inflate the price of new homes. Those programs allowed sellers to pay a portion of the buyers’ down payment, which in turn tended to drive up the price that people could afford to pay for their homes.

“We’ve had bad experiences when home sellers get involved in mortgages, particularly innovative mortgages,” said Dan Immergluck, a professor at the Urban Studies Institute at Georgia State University, who studies the housing market, mortgage finance and foreclosures. Mr. Immergluck said if the program drives up home prices, buyers without student loans will end up sharing the burden with those who do.

Mortgage-finance company Fannie Mae has agreed to back the loans and will monitor the program to ensure that the value of student-loan payment isn’t included in appraisals of the home, which in turn can help drive up values.

“This is not without risk,” said Jonathan Lawless, vice president of customer solutions at Fannie Mae. “Builders always want to provide more money and incentives for people to buy their homes. It has the potential to start distorting values.”

On a side note, and somewhat ironically, the WSJ used a Texas family that already owns a home and simply intends to upgrade to a larger McMansion as an example of the potential of a program designed to help recent graduates who have had a hard time breaking into home ownership.

Christopher Oquendo and Jeri Coate are
planning to use the program to virtually eliminate their student debt.
The couple, who are in their mid-30s, wanted a bigger house but were reluctant to take on more debt. Ms. Coate, who works in a notary’s office, still had outstanding student loans from training she had done to be a medical administrative assistant and the couple had other unpaid bills as well.

“We needed to get something bigger and upgrade but it was kind of a rough decision to make considering our status with bills and all,” Mr. Oquendo said.

The couple are now in the process of closing on a Lennar home in the city of La Marque, Texas, about 50 miles south of Houston, with two more bedrooms than they had before.

Of course, if home ownership is important to millennials than another idea would be for them to actually save their money for a down payment rather than spending it all on the new iPhone every year…but what do we know.

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