I Miss The NINA (No Income, No Asset) Mortgage

Every year at the Pesach seder we ask: “Why is this night different than other nights?” And so, with this is in mind, I bring up “Why is the Real Estate Market with higher interest rates any different today, than it was years ago, when mortgage rates were even higher—in the 7s, 8s, and even 9s.

Years back, when interest rates were even higher, and they were not only higher, but much higher since those 3% and 4% mortgage rates were unheard of back then, buyers still came out and bought and sellers still put their homes on the market, either wanting to enlarge up or downsize to retire or just to change neighborhoods or relocate for employment or whatever.

So, again I ask, “What makes this market different than past markets where rates were higher?”

Let’s explore a little about what else is different about those past markets that compares differently with today’s market and why the outcomes were also very different.

To start with, as we all know, the real estate market prices even back to the last time we saw interest rates in the 6-7% range were probably closer to a fifth of the price of what the average house costs today. Back then, the average home went in the $200K range even while there were of course higher priced houses going up the chain in different categories.

Now, there is no way prices are going to go down to what they were. That is like dreaming chicken prices will drop to 49 cents a pound, but several factors do contribute to a changed market because it makes it that much harder for would be buyers to put together down payments for housing purchases as well as qualifying for the remaining large mortgages needed to purchase these homes.

So, here we come to my favorite reason why the market has been stymied by less buyers today than in the past: the extinct “no income, no asset mortgage.”

Years ago, there was a complete menu of no income, no asset mortgages which were an alternative for those who could not document income and sometimes assets, but could afford to carry those mortgages and used them as their entry into the real estate market.

There was a stated program for those who had strong businesses, but could not show the right numbers on their income tax statements, which was especially good for those in sales or in the food and restaurant business. It was a “no asset” program for those possibly getting a lot of different gifts from family or friends that could not be easily verified, and the favorite: “no income, no assets,” where you just needed to prove you were employed and had a good credit score.

Needless to say, there were also a lot of these products on the market as well that were geared to people with terrible credit ratings, and those who would never even be able to come up with the first month’s mortgage payment. Unfortunately, because of program mutants like this and the issuing of so much mortgage debt to people who could never afford to make payments, a banking disaster was created that buried the good with the bad.

The “no income” programs that depended on a strong credit rating and a history of making on-time payments were a badly needed mortgage option for home buyers who did not wish to or could not provide the typical paperwork that shows sources of income. If this program had been left to its own without offering its bad credit hybrid to those who should never have been approved for any mortgage, the credit disaster could have been avoided.

NINA mortgages, or “no income, no asset” mortgages, are specialized loans for borrowers who may not qualify for traditional mortgages. They usually have higher rates and are higher risk for the lender because these borrowers are more likely to default. Today’s regulations require lenders to verify that borrowers can pay their monthly mortgage payments, but wouldn’t it be nice if the banks reconsidered these NINA programs in a limited form for strong credit mortgage applicants? They may represent as much as 25-30% of the home buying market. Having such a program would add a little extra zing to make things interesting and they would even help those would-be sellers who want to sell, but are unable to qualify for a mortgage that could enable them to move on and purchase elsewhere. n

Anessa Cohen lives in Cedarhurst and is a licensed Real Estate Broker (Anessa V Cohen Realty) with over 20 years of experience offering full service residential and commercial real estate and management services.  She can be reached at 516-569-5007. Readers are encouraged to send any questions or scenarios by email to [email protected].