The reason I pose this question is that Flagstar Mortgage recently came out with a zero money down product and a zero closing cost loan product. With these products, the borrower won’t have any skin in the game.

You might be thinking, “Isn’t that what got us into trouble in the first place? Didn’t we offer these loans in 2005, 2006, and 2007, which eventually crashed the marketplace?”

Yes, thank you very much! That’s what I was thinking, too.

You might also be thinking that they surely have safeguards in place, that they’re only offering these products to high-net-worth, high-income, good-credit borrowers who can really handle the risk.

“These types of loans were used heavily before the mid-2000s market crash.”

Actually, it’s quite the opposite. They’re advertising this loan to the poster-children of bad-credit borrowers.

The only silver lining is that it is just limited to the Detroit metro area, where they’re using these loans to try to revitalize some neighborhoods there. That isn’t bad per se, but the bad news is that Fifth Third Bank in Cincinnati is also coming out with a similar product, which will roll out in several states.

We are a long way off from a crisis, and a lot can happen between now and then. However, if you start seeing a slowdown a few years from now, just wait and see if these loan products expand and are used more and more heavily to try to extend the earning cycle of these banks.

If you found this information useful, remember to share with friends and family. For any questions you may have about this topic or for ideas about future topics you’d like me to address, feel free to reach out to me. I’d be happy to help you.