We imagine there are millions of American millennials who have made it through college, found a job, got married and would like to take their next crucial step on the way to adulthood: Buying a home. There's only one problem: Thanks to stagnant wages and onerous student loan debt (factors that have helped jack up spending even as incomes have languished) most millennials don't have any money.
Indeed, for the first time ever, millennials with student debt now have a negative net worth.
While most Americans borrow when buying their homes, millennials can't even afford the down payment that lenders typically require so that their customers have some "skin in the game."
Yet, while most lenders view this fact as a risk (borrowers typically need to put up 20% of the price), a growing number of enterprising lenders see these broke borrowers as an opportunity. The latest example of this ill-advised trend was highlighted by the Wall Street Journal on Friday, with the absurdity inadvertently laid bare by WSJ's social media team.
This will end well. pic.twitter.com/vaATQP16I9
As WSJ explains, enabling millennials to buy homes they can't afford risks igniting a re-run of the housing crisis - an outcome made more likely by the fact that home prices have already surpassed their excesses from the pre-crisis era. The phenomenon has been exacerbated by a shortage of homes that has persisted for years.
But what's even more alarming than the fact that lenders are out there chasing this business (despite the fact that nearly 40% of renters ages 25 to 34 said they save nothing every month for a down payment) are the schemes that some lenders have devised to help their borrowers "fund" their down payments.
To wit, CMG Financial created HomeFundMe, a service it launched last year. As its name would imply, HomeFundMe helps would-be borrowers beg for cash from their friends and family by sending passive aggressive emails.
Reese and Kyle Rademacher weren’t sure how they would afford a down payment to buy a home until their real-estate agent mentioned an offbeat idea: crowdfund the money from friends and family.
Mrs. Rademacher, a 28-year-old construction technician, set up an online profile with a program called HomeFundMe to solicit donations. Her parents and a few others responded, and in March the Rademachers closed on a $320,000 home in Cheyenne, Wyo.
HomeFundMe, a service launched by lender CMG Financial last year, is among a growing suite of services that help borrowers cobble together the funds to buy homes. These companies -- startups and established players in the housing market alike -- say they’re offering options for borrowers who have good credit and income but are...