"Innovative Mortgages": Lennar Lures Millennials With Offer To Repay Student Loans

Tyler Durden's picture

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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HelluvaEngineer's picture

This is the most Jewish Idea I've ever heard of.

NoDecaf's picture

I don't need a house but can I mortgage a hamburger every Wednesday for the next 30 years?

El Oregonian's picture

And then refi and get a 125% loan for the new home, Voila! Golden! Mo money in da back pocket!

Yes, what could possibly go wrong? LOL

johngaltfla's picture

Insert the "Oh Jeez, not this shit again" meme here.

evoila's picture

This seems like a good way to to turn student debt into BK-able debt. Too bad it's only up to $13K. 

Endgame Napoleon's picture

It sounds like another symbiotic relationship between Big Government and a private corporation, favoring certain social groups as usual, while others are expected to pay whatever kind of debt they have without the rigging. That said, if these homes were modest in size and price, I could see it in a way, in that the millennials are having a hard time, no harder than many other groups and individuals, though.

Every generation should have a chance at homeownership. I agree with that part, but since marriage rates have deteriorated right along with wages, the chances of sustaining a mortgage over time have declined. Whereas, back in the era of stay-at-home moms, when fewer people were chasing jobs and driving down wages, most couples were able to pay off a mortgage by retirement. But homes were more modest for all but a few of the richest people back then.

So Close's picture

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.

 

But indirectly......   Higher points on mortage or higher fees....

Endgame Napoleon's picture

Or maybe, they have made some deal with Fannie and Freddie to subsidize the homebuyers in the program and, in turn, their corporation.

peopledontwanttruth's picture

That rotten stinking smell is either desperation or the DEAD corpse of the economy.

peopledontwanttruth's picture

So true. We've all been watching for years but this is just another straw on a camel whose legs are buckling

aurum4040's picture

Do you guys even read this shit or just assume? It doesn't affect the home loan or value, period. It's an incentive. And a good one at that. 

BSHJ's picture

Get that loan then get a second mortgage and upgrade to a double-meat burger

NotApplicable's picture

What could possibly go wrong?

HelluvaEngineer's picture

notary’s office -> medical administrative assistant

Hell, that's a $5 / hr promotion!

América es la tierra de la violación y la miel

peopledontwanttruth's picture

The year 2008X100

Because the world has caught on it's just printing presses backed by a worn out old toothless beast. The world is waiting for this moment. They've been planning for the collapse it's only the USA and her daughter whores that doesn't have a plan

buzzsaw99's picture

fannie mae will also insist they water the lawn with brawndo the thirst mutilator because it has what plants crave.

HelluvaEngineer's picture

Perhaps you're unaware - it also has electrolytes.

LetThemEatRand's picture

"Buy this $200K home for $230K, and we'll pay $13K off your student loans."   

Swamidon's picture

Nope, read again.  That's 3k per each 100k so the full 13k only comes with purchase of a half-million dollar house.  The kid would have to make at least 40k a year to qualify for that loan. 

LetThemEatRand's picture

"The kid would have to make at least 40k a year to qualify for that [$500K] loan."

Good point.

But if he has a neck beard and works only part-time jobs, they'll knock it down to $35K to qualify....

In related news, I heard from my investment advisor that I can get a great return investing in mortgage backed securities packaged by Lennard.

tarsubil's picture

Holy shit have I missed ZH humor.

Endgame Napoleon's picture

That is ridiculous then, but what else would we expect?

peopledontwanttruth's picture

They'll get the loans through too because most builders to get their Incentives, you must use their preferred lender and title company.

Just brush it under the rug Hal, let's make our money and get out of town.

CHoward's picture

Yep...that's how I'm reading it.  Makes perfect sense.  WTF?!?

Seasmoke's picture

Perfect. Buy the house. Get rid of $13,000 in student debt that doesn't go away in bankruptcy. Live in house mortgage free for 5 years. Hand back keys in 5 years with no more student debt. Winning.

HRH Feant2's picture

Jingle keys, jingle keys, jingle all the way . . .

wisehiney's picture

Petty could dig runnin down a dream.......

https://www.youtube.com/watch?v=Qv4-m-cIZf4

It was a beautiful day, the sun beat down
I had the radio on, I was drivin'
Trees flew by, me and Del were singin' little Runaway
I was flyin'

Yeah runnin' down a dream
That never would come to me
Workin' on a mystery, goin' wherever it leads
Runnin' down a dream

I felt so good like anything was possible
I hit cruise control and rubbed my eyes
The last three days the rain was un-stoppable
It was always cold, no sunshine

Yeah runnin' down a dream
That never would come to me
Workin' on a mystery, goin' wherever it leads
Runnin' down a dream

I rolled on as the sky grew dark
I put the pedal down to make some time
There's something good waitin' down this road
I'm pickin' up whatever's mine

Yeah runnin' down a dream
That never would come to me
Workin' on a mystery, goin' wherever it leads
Runnin' down a dream

HRH Feant2's picture

I was a teen in the 70s and 80s. Grew up listening to rock and roll as a little kid and then 70s music and then 80s.

People actually think the crap people make these days is music? Nope.

E.F. Mutton's picture

Do they not teach TINSTAAFL in Econ 101 anymore?

Or has Econ 101 been replaced by African Lesbian Theory?

Row Well Number 41's picture

"Do they not teach TINSTAAFL in Econ 101 anymore?"

 

I doubt 1 in 10 know what that means, us Heinlien fans do, though not because we were taught it in school or anything.

peopledontwanttruth's picture

Now that's funny right there. LOL

Golden Showers's picture

So, that means I have to buy a $433,333.33 house to get the $13k off my loans? When the fuck does that make any sense?

Row Well Number 41's picture

You could almost get a one bedroom condo for that where I live.

Juggernaut x2's picture

It's anti-semitic to point that out

HRH Feant2's picture

Hmmmmm. So rather than save up to pay cash for a new hardwood floor I can buy a new house? A more expensive house? Wow. I'll pass.

Swamidon's picture

Imagine the string of broken dreams this deal will bring for everybody but the Builder.  Any Melinnial crazy enough to think about buying a house right now shows why they have student debt.   

RozKo's picture

It doesn't matter how many mirrors they use in order to hide the fact that when everything heads south, you become their debt slave. Get out of debt now while you still can, everything has its price because nothing is free...

Bunga Bunga's picture

So now you can essentially default on a student loan?

peopledontwanttruth's picture

The whole country and world is going to default
But I agree this is pure insanity.

I can see on the horizon if the houses aren't vaporized in a nuclear war a ton of houses filled with mold, broken windows and grass up to the ass of a 40 foot Indian

WTFUD's picture

Never give a sucker an even break - W.C. Fields

armageddon addahere's picture

And never smarten up a chump - also W.C. Fields

panicearly's picture

Default rates gonna be no less than those on student loans.

historian40's picture

Likely higher, as there will surely be those who may have paid because they were dealnig with the government, instead of losing a house they may not have really needed or could afford.

WTFUD's picture

Green Green Grass of Home

'. . . and there to bleed me was a Fannie and a Goldman . . . yes they'd all come to bleed me . . . . it's good to touch the green green grass of home (while it's yours) . . . '

Silver Savior's picture

Oh this is a fright. Well not really because soon all debt will go to zero because the dollar will fail. Oh well. It's all just noise.

Yen Cross's picture

  Holy Shit, this crap makes me laugh! Most of student loan debt is interest!

   A used car dealer or Blythe Masters, must have come up with this idea?

  The next thing you know, they'll just roll the student loan debt into the mortgage.

 If you like your 30 year student loan, and negative [r/e] equity for ten years, sign here______

zagzigga's picture

Housing MUST stay propped up! Coming up next - 100 year mortgages with no interest or principal payments for the first 100 years.

moorewasthebestbond's picture

The NAR will act as cheerleaders for this!