UWM Defends New Zero Down Mortgage Amid Industry Backlash, 'We Believe In It So Much'

United Wholesale Mortgage UWMC is supporting its new 0% down payment product despite skepticism from market watchers who draw parallels to the risky loans that triggered the 2008 financial crisis.

The program, launched in May, provides borrowers with a 3% down payment second lien of up to $15,000 and has been met with enthusiasm and concern. According to a CNN report, critics have labeled it a red flag, reminiscent of the lending practices that contributed to the Great Financial Crisis. However, UWM executives maintain that the product was developed under stricter federal underwriting guidelines than two decades ago.

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The 2008 mortgage crisis was largely fueled by subprime lending practices, including no-documentation loans and adjustable-rate mortgages with low initial "teaser" rates. Many borrowers were approved for mortgages they couldn’t afford long-term.

In contrast, UWM’s 0% down product requires total income and asset verification, adheres to strict federal guidelines, and is a fixed-rate mortgage. While it eliminates the down payment hurdle, borrowers must still meet credit score requirements and debt-to-income ratios, safeguards that were often overlooked during the pre-2008 lending boom.

"This is not like how it was done back in the 2000s," Alex Elezaj, executive vice president and chief strategy officer at UWM, said in an interview with National Mortgage News. "The people who’ll say they’re experts and talk about that just simply don’t know what they’re talking about."

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As previously mentioned, the new mortgage product requires borrowers to meet specific criteria, including HomeOne or Home Possible guidelines and loan-to-value ratios between 95% and 97%. First-time homebuyers must have a 700 FICO score, while other buyers need an Area Median Income at or below 80% and a minimum 620 FICO score.

Despite the stringent requirements, there are concerns about the potential risks. Some industry analysts have expressed concerns that borrowers might face immediate negative equity upon obtaining the loan. In contrast, Elezaj dismissed these concerns as unfounded, asserting that property values and interest rates fluctuate naturally, and emphasizing UWM’s rigorous underwriting process as sufficient protection.

While the company has not disclosed application statistics or the amount set aside to cover origination costs for the new product, Elezaj said that customer interest has been "fantastic."

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"This is a fantastic program," the executive told National Mortgage News. "The biggest hurdle to homeownership is the down payment. We’ve solved that by having this product."

"There aren’t many non-bank lenders that can offer a program like this. UWM is using our cash to be able to help these consumers, so it’s costing us a tremendous amount of money. We believe in it so much, we’re willing to do that. We are 100% confident in the program and it’s been great," he said.

UWM’s move comes at an extremely unaffordable time in the housing market, with mortgage rates hovering around two-decade highs at 7% and home prices remaining elevated near all-time highs.

Despite the challenges, Elezaj expressed optimism about a market rebound, highlighting the company's hiring of over 2,000 people since the beginning of the year in anticipation of future growth.

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