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Calm down, “zero down loans” isn’t a cuss word

Zero down loans are on the rebound on a small scale, but is it really such a horrible thing for the housing sector?

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“Zero Down” nearly a cuss word

The term “Zero Down Loan” is almost guaranteed to induce an immediate negative response in any one hearing the term. After all, unlike many other terms that we became reluctantly familiar with during the financial crisis (think tranches, negative equity, mortgage backed securities, bond insurance) the term “zero down loan” is easy to understand. We all know what a down payment is, and we all know what zero is. And “common sense” says they don’t belong together.

The fact that two credit unions – Navy Federal and and NASA Federal – have had great success and a very low default rate with their zero down loan program over the past two years backs up my personal experience that the financial crisis wasn’t the result of zero down loan programs, but the result of zero underwriting loan programs – either by carelessness or purposeful deceit by the major banks.

The key to a successful lending program

The key to any successful lending program is smart underwriting. And anyone that got a mortgage in the years leading up to Lehman Brother’s bankruptcy in the fall of 2008 will attest that underwriting standards were “aspirational.”

Which meant that as long as you could document that you aspired to pay back your loan, regardless of your documentable income or means, you could have the loan. While aspirational underwriting isn’t entirely to blame for the financial crisis, it certainly played a significant role.

If you were hoping for a laundry list of reasons why zero-down loans are a bad idea, you’ll have to look elsewhere. Zero down loans are just one tool that can unlock home ownership. Like every other tool, it can do great good when used appropriately or cause great damage when used recklessly.

Zero down loans are just one tool

The buyers I’ve worked with in San Francisco that purchased with zero down have all been incredibly solid people that remain in their homes to this day. That’s right: My experience with zero down programs and my buyers is zero default. Why?

The buyers that I know that have used zero down loan programs were incredibly successful and hard working individuals that had everything needed to buy a home except the down payment. They weren’t looking to increase their leverage, make a quick flip, or qualify for a home that they otherwise couldn’t afford. All they wanted was to be homeowners in San Francisco, and that dream came true thanks to zero down loans.

But then there are reasons they don’t make sense

There are a few situations where zero down loans don’t make sense and should never be allowed. Investment property is one such example that comes to mind immediately. It’s one thing to walk away from a loan – “strategically default” – on an investment property. It’s an entirely different act to walk away from the home that provides the roof over your head. Regardless of the financial equity in either situation, a homeowner occupying the property is far more emotionally invested in continuing to have a roof over their head.

So I say bring on the zero down loan programs. As long as zero down loan programs are tightly coupled to thorough underwriting standards, I believe they are a great tool for helping broaden access to the real estate market for first time buyers. A smart loan to a well-qualified buyer that has been extensively vetted is a smart loan regardless of the buyer’s down payment.

Matt Fuller brings decades of experience and industry leadership as co-founder of San Francisco real estate brokerage Jackson Fuller Real Estate. Matt is a Past President of the San Francisco Association of Realtors. He currently serves as a Director for the California Association of Realtors. He currently co-hosts the San Francisco real estate podcast Escrow Out Loud. A recognized SF real estate expert, Matt has made numerous media appearances and published in a variety of media outlets. He’s a father, husband, dog-lover, and crazy exercise enthusiast. When he’s not at work you’re likely to find him at the gym or with his family.

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2 Comments

2 Comments

  1. Greg Cook

    May 17, 2013 at 10:57 am

    You’re right Matt, “skin in the game” is over rated as a predictor of default. History of managing debt and a debt to income ratio at 45% or less do as much (or more) to insure loan performance

  2. Mark Brian

    May 17, 2013 at 12:19 pm

    Disappointed by the lack of cuss words in this article but I agree none the less! The phrase “zero underwriting loan programs” is so very very true. Not that the banks or Washington will ever admit this.

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Opinion Editorials

7 ways to carve out me time while working from home

(OPINION / EDITORIAL) It can be easy to forget about self-care when you’re working from home, but it’s critical for your mental health, and your work quality.

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Woman in hijab sitting on couch, working from home on a laptop

We are all familiar with the syndrome, getting caught up in work, chores, and taking care of others, and neglecting to take care of ourselves in the meantime. This has always been the case, but now, with more people working from home and a seemingly endless lineup of chores, thanks to the pandemic. There is simply so much to do.

The line is thinly drawn between personal and professional time already, with emails, cell phones, and devices relentlessly reaching out around the clock, pulling at us like zombie arms reaching up from the grave. Working from home makes this tendency to always be “on” worse, as living and working take place in such close proximity. We have to turn it off, though.

Our brains and bodies need down time, me-time, self-care. Carving out this time is one of the kindest and most important things you can do for yourself. If we can begin to honor ourselves like this, the outcome with not only our mental and physical health, but also our productivity at work, will be beneficial. When we make the time to do things we love, our body untenses, our mind’s gears slow down that constant grinding. Burnout behooves nobody.

Our work will also benefit. Healthier, happier, more well rested, and well treated minds and bodies can work wonders! Our immune systems also need this, and we need our immune systems to be at their peak performance this intense season.

I wanted to write this article, because I have such a struggle with this in my own life. I need to print it out and put it in my workspace. Last week, I posted something on my social media pages that so many people shared. It is clear we all need these reminders, so I am paying it forward here. The graphic was a quote from Devyn W.

“If you are reading this, release your shoulders away from your ears, unclench your jaw, and drop your tongue from the roof of your mouth.”

There now, isn’t that remarkable? It is a great first step. Let go of the tension in your body, and check out these ways to make yourself some healing me-time.

  1. Set aside strict no-work times. This could be any time of day, but set the times and adhere to them strictly. This may look like taking a full hour for lunch, not checking email after a certain hour, or committing to spending that time outdoors, reading, exercising, or enjoying the company of your loved ones. Make this a daily routine, because we need these boundaries. Every. Single. Day.
  2. Remember not to apologize to anyone for taking this me-time. Mentally and physically you need this, and everyone will be better off if you do. It is nothing to apologize for! Building these work-free hours into your daily schedule will feel more normal as time goes on. This giving of time and space to your joy, health, and even basic human needs is what should be the norm, not the other way around.
  3. Give yourself a device-free hour or two every day, especially before bedtime. The pinging, dinging, and blinging keeps us on edge. Restful sleep is one of the wonderful ways our bodies and brains heal, and putting devices away before bedtime is one of the quick tips for getting better sleep.
  4. Of course, make time for the things you absolutely love. If this is a hot bath, getting a massage, reading books, working out, cooking or eating an extravagant meal, or talking and laughing with a loved one, you have to find a way to get this serotonin boost!
  5. Use the sunshine shortcut. It isn’t a cure-all, but sunlight and Vitamin D are mood boosters. At least when it’s not 107 degrees, like in a Texas summer. But as a general rule, taking in at least a good 10-15 minutes of that sweet, sweet Vitamin D provided by the sun is good for us.
  6. Spend time with animals! Walk your dog, shake that feathery thing at your cat, or snuggle either one. Whatever animals make you smile, spend time with them. If you don’t have pets of your own, you could volunteer to walk them at a local shelter or even watch a cute animal video online. They are shown to reduce stress. Best case scenario is in person if you are able, but thankfully the internet is bursting with adorable animal videos, as a backup.
  7. Give in to a bit of planning or daydreaming about a big future trip. Spending time looking at all the places you will go in the future and even plotting out an itinerary are usually excellent mood-boosters. It’s a bit different in 2020, as most of us aren’t sure when we will be able to go, but even deciding where you want to go when we are free to travel again can put a positive spin on things.

I hope we can all improve our lives while working from home by making time for regenerating, healing, and having fun! Gotta run—the sun is out, and my dog is begging for a walk.

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Opinion Editorials

Improve UX design by tracking your users’ eye movements

(OPINION / EDITORIAL) Research shows that the fastest way to determine user behavior and predict their response is by watching their eyesight. Use this data to improve your UX design.

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UX design being created by a designer on a laptop.

By design, an ice cream truck is meant to entice. It is colorful, stupidly loud with two whole songs from the 30s (usually off key because no one is left alive who can service those bells), and lots of colorful stickers that depict delicious frozen treats that look nothing like reality. If you need an off model Disney character that already looks a little melted even when frozen, look no further.

This is design in action – the use of clever techniques to drive engagement. Brightly colored decor and the Pavlovian association of hearing The Sting in chirpy little ding dings is all working together to encourage sales and interaction.

These principles work in all industries, and the tech sector has devoted entire teams, agencies, companies, groups, and departments to the study of User Experience (UX) explicitly to help create slick, usable applications and websites that are immediately understandable by users. Tools to improve utility exist by measuring user behavior, with style guides and accepted theories preached and sang and TED-talked all over.

The best way to check behavior is to observe it directly, and options to check where someone clicks has proven invaluable in determining how to improve layouts and designs. These applications are able to draw a heat map that shows intensified red color in areas where clicks congregate the most. An evolution of this concept is to watch eyesight itself, allowing developers a quicker avenue to determining where a user will most likely go. Arguably the shortest path between predicting response, this is one of the holy grails of behavioral measurement. If your eyes can be tracked, your cursor is likely to follow.

UX design can benefit greatly from this research as this article shows. Here’s some highlights:

Techwyse completed a case study that shows conversion on landing pages is improved with clear call-to-action elements. Users will focus on objects that stand out based on position, size, bright colors, or exaggerated fonts. If these design choices are placed on a static, non-interactive component, a business will lose a customer’s interest quickly, as their click is meant with no response. This quickly leads to confusion or abandonment. Finding where a person is immediately drawn to means you should capitalize on that particular piece with executable code. Want it boiled down? Grocery stores put Cheetos front and center, because everyone want them thangs.

Going along with this, Moz found that search results with attractive elements – pictures and video – are given much more attention than simple text. We are visually inclined creatures, and should never undervalue that part of our primal minds. Adding some visual flair will bring attention, which in turn can be leveraged usefully to guide users.

Here’s an interesting study – being that we are social animals, follow the gaze of others. If you’ve ever seen kittens watching a game of ping pong, they are in sync and drawn to the action. Similarly, if we notice someone look to the left, we instinctively want to look left as well. While this sounds very specific, the idea is simple – visual cues can be optimized to direct users where to focus.

The Nielsen Group says we look at things in an F pattern. I just think that’s funny, or at least a funny way to describe it. We follow from left-to-right (just like we read, and as websites are laid out using techniques first developed for newspapers, it naturally makes sense that we’d do the same). Of course, cultural or national differences arise here – right-to-left readers need the opposite. Always be sure to keep your target audience in mind.

Of course, there are several other findings and studies that can further promote idealistic layout and design, and it should always be the goal of designers to look to the future and evaluate trends. (Interestingly, eye tracking is the first option on this list!)

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Opinion Editorials

COVID-19 and mask mandates: What we can and can’t control

(OPINION / EDITORIAL) A presidency can order a mask mandate, but as history shows, enforcement remains difficult. Could there be an incentive for COVID-19?

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Parent masking their child to protect from COVID-19

Did you know the United States government can’t actually enforce a nationwide speed limit? Seriously, I didn’t know this. The 55 MPH limit was something I vaguely remember from childhood, right on down to all the speedometers marking that number in its own color (usually red) to draw attention and denote special significance. I figured that was the deal and law of the land by way of the Supremacy Clause of the Constitution, which shorthand states that federal law overrides state law if conflict exists.

While that much is true, the issue still boils down simply to enforcement – it’s not so much that there’s any question of legality, but difficulty in ensuring a mandate is followed. The government has the power to issue a new law, but smaller jurisdictions – states, counties, cities, etc. – are not held to any specific legal requirement to enforce it.

The polarization over COVID-19 pandemic is sharp and well pronounced, with both sides stressing their viewpoints with fervent belief. This debate has a storied history, with roots running all the way back to the influenza pandemic of 1918. I am not here to discuss either side directly – the goal is to address whether or not the federal government can effectively enforce a COVID-19 related mandate across the nation. As illustrated above, the answer is no. Similar situations have arisen in the last few decades on other matters that hinged on the fulcrum of personal freedom versus regulation.

Seat Belt Laws might be the most direct comparison, with a history that spans back into the late 60s. At that time, only 14 percent of drivers regularly wore seat belts. Similar to today, various laws were introduced by the National Highway Traffic State Administration that tried to enact new safety measures, including requiring passive safety belts in newly manufactured cars starting in 1968, a locking system that prevented cars from starting if a seat belt was not attached in 1973 (killed by Congress a year later), and automatic passive restraints (airbags or on-track seat belts that automatically engaged) in 1977.

Public and political backlash was intense, and the incoming Reagan administration issued its own deregulation-centric policies to fight against further legal measures. In the end, seat belts did become mandatory along with driver’s side airbags; only New Hampshire does not have a law as of today. Even so, the point here is that this fell to states to draft their own laws and then decide upon the level of enforcement (primary versus secondary); the federal government played a role in this (I’ll explain in a moment), but is not the ultimate arbiter.

Marijuana law is also analogous – the federal ruling is that the drug is outlawed, and will prosecute citizens from states that have made it legal (including situations deemed medical). Colorado has reported revenue in the tens of millions (more than alcohol sales, even), and numerous arguments have been made to try and have a federal law revision.

Drinking ages? Similar still – Congress did not enforce a minimum age of 21 until the passing of the National Minimum Drinking Age Act of 1984. Despite states having the age at 18 or 19, many swiftly fell in line.

What do all of these – speed limits, seat belts, marijuana, and drinking – all have in common? Questions of enforcement and how to regulate it. Now, masks join this list of contentious argument.

So what can be done for COVID-19? Perhaps predictably, money becomes the primary motivator. How did the federal government respond to most of these situations? Through incentivizing – states that complied with the 55 MPH speed limit continued to receive their full funding from the Federal Highway Administration (Nevada famously lost all funding for calling the bluff in 1986). The opposite was also effective – states that did not raise their minimum drinking age were penalized via a reduction of road funding. While neither option could be classified as federally-driven enforcement, they demonstrate that there are still methods available to passively regulate the law of states.

The quick and simple way to think about this? Pizza parties. You got those in school when you read extra books or collected trash or sold candy bars. While teachers couldn’t explicitly force you to do any of those things, the promise of pizza was enough. The government has the right to legislate, but cannot enforce, but can use money to motivate.

So really, maybe all we need to do is get Taco Bell to hand out Doritos Locos Tacos to mask wearers preventing the spread of COVID-19.

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