A government publication offering banks guidance on “community development” urged banks to offering low-income borrowers loans with many of the features now deplored as irresponsible and lax lending. The two-volume set uncovered by Clusterstock was titled EFFECTIVE STRATEGIES FOR COMMUNITY DEVELOPMENT FINANCE/COMMUNITY DEVELOPMENT RESOURCE GUIDE.
The publication provides information and examples for how banks could meet their obligations under the Community Reinvestment Act, including a recommendation for making a home loan where the borrower puts almost no money down while taking on multiple, piggy-back loans. To make this more enticing, it recomends selling the loan into the secondary market.
It’s actually quite extraordinary. It shows how a person could buy a $70,000 house using less cash than their monthly rent of $750. It calls for the borrower to contribute just $700 in cash, and encourages they be given credit for “sweat equity” home repairs and proposes a down payment of just $500 with out specifying the source. (Presumably friends and family, although perhaps the bank itself.
The guide actually spends quite a bit of time telling banks how to provide loans without requiring down payments from the borrower. Go ahead and read through it for yourself.