SANTA ANA, CA—Products like Orange County's Credit Union's conventional zero-down and 3%-down mortgages may help some people buy homes, but it won't do much to ease Orange County's lack of multifamily supply or rising rental rates, VP of mortgage lending Carlos Miramontez tells GlobeSt.com. Orange County's Credit Union is one of the only lenders in the county to offer both conventional zero-down and 3% mortgage for its members, making buying a home seem more possible for Millennials in Orange County and the surrounding areas.

With starter homes costing around $500,000-plus, putting tens of thousands of dollars down upfront is not always an option for first-time homebuyers, and solutions like co-borrowing are increasing in prevalence as first-time buyers struggle to become homeowners. As Daren Blomquist, SVP of ATTOM Data Solutions, told GlobeSt.com in September, one of the advantages of co-borrowing is, “You may be able to qualify for a loan to buy a home that you might otherwise not qualify for on your own. Our data shows the presence of a co-borrower also helps to reduce the interest rate—the average interest rate on Q2 2017 loans with co-borrowers was 4.11% compared to 4.28% for loans without co-borrowers—which can lower the monthly mortgage payments, making the home purchase more affordable. A co-borrower situation can also involve the co-borrower contributing to the down payment, which also lowers the monthly mortgage payment.”

But OCCU offers another solution with its zero-down and 3%-down mortgages. We spoke with Miramontez about OCCU's offerings and their impact on both single-family and multifamily housing in the region.

GlobeSt.com: What is the latest trend with zero-down and 3% home mortgages?

Miramontez: The most commonly known zero-down-payment mortgage is a VA loan. The challenge is that it's limited to just veterans and their families. We created a conventional zero-down for more consumers. The barrier to entry is saving for a down payment. Many of our members have good income and high credit but are paying high rents, so they can't save for a down payment, and it's preventing them from buying even a modest home. And with housing prices going up, at some point in time they may not be able to afford a home—it's the cost of waiting. We solve this portion of the conundrum, to be able to get into a home paying what they are paying now. That's what makes the zero-down more unique.

On the 3%-down, a widely available product, what's different about our product is that it's offered on loan amounts up to $850,000. Orange County is the highest-cost housing market in all of Southern California, so this helps people buy a median-priced home. We're not focusing on helping people buy luxury homes, but average-priced homes.

GlobeSt.com: What does this trend say about the housing market?

Miramontez: The affordability index has reached a low of 21% in Orange County, the lowest in all of Southern California. And it's not just the homebuying part, but rental rates are going up, too. If people continue to rent, their housing costs will exceed what they can afford, and they won't be able to buy either. Lenders are trying to help consumers. There are concerns of the pendulum swinging too far right, but regulations have been put in place industry wide, and with the qualified-mortgage rule, a lot of the affordability products available now have set requirements. Interest-only loans are not very prevalent, so lenders are offering a more-responsible way for members to purchase a home. It's great for the industry because it's not going to result in a lot of defaults, and it's helpful for consumers, who will be able to stay in their home for the long term without balloon payments. Everyone has learned from what happened in 2008. Because we're member owned, we're not interested in products that do not to cater to our members. We're going to be with them servicing their loans, so it doesn't make sense not to serve them. We have a vested interest in helping them secure the right loan product.

GlobeSt.com: Where do you see this trend going?

Miramontez: I think it's going to help people in purchasing their first home. A lot of down-payment-assistance programs and grants don't work in some areas of Southern California because even if you qualify for the program, many people can't afford to buy a home in the market. Our products can be used by a larger number of members that have been stopped by low-down-payment mortgage limitations.

GlobeSt.com: What else should our readers know about zero-down and 3% home mortgages?

Miramontez: A lot of folks call and inquire about our zero-down product, but sometimes they end up with the 3%-down instead. The way we measure success is by the number of members we help get into homes. Our mortgage-loan consultants show them the difference among the loans, and some members discover that the 3%-down loan or even the 5%-down loan is better for them. It's not about how many zero-down-payment loans we get. It's about providing the best loan to meet their needs.

Unfortunately, this won't have much impact on the housing crunch because the lack of housing supply is out of the mortgage-industry's control. A lot of builders aren't building entry-level homes because of the cost to build. The biggest pressure on affordable homes is the lack of supply, so even if we help more members buy homes, it won't have much impact on that. We need more construction to happen in both of those markets—multifamily and single family. It's a tough market, and a lot of people are looking in other states that are more affordable.

Instant Insights /

Zero-Down is Great, But Won't Ease Housing Crunch

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