OMG, Is It Not Different This Time?

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Don't look now, but 100% mortgage financing is still kicking around.

Navy Federal Credit Union is pushing its no-money-down mortgage product, Home Buyers Choice. Sure, the situation at Navy Federal could be considered a bit different from what we saw before the crisis. For one, Navy Federal is a not-for-profit credit union, not a major Wall Street bank. The operation has a very "by-us, for-us" feel, as it's largely retired military serving fellow current and former military. 

There's also a much different relationship between Navy Federal and its mortgagors. Or, rather, there is a relationship. Before the meltdown, major banks such as Bank of America  (NYSE: BAC  ) -- and the ill-fated Countrywide that it acquired -- were focused on writing quick loans to anything with a pulse so that they could package the loans into securities and sell them off. Navy Federal largely holds the loans it makes on its books.

In more important ways. though, this is simply more of the same. Consider what the credit union's press release said about the financing option:

Currently, fifty-three percent of the credit union's purchase volume are first-time homebuyers who generally don't have the cash reserves to make large down payments.

You'd think that in the wake of the recent recession. at least one lesson that was worth tattooing into our collective hides is the idea that if we don't have the money to buy something, we shouldn't buy it. Besides, we could say that 100% financing isn't a home purchase at all -- it's buying an option on a home.

I'm not worried about Navy Federal Credit Union. As far as I can tell, the executives have a handle on what they're doing. Balance sheet leverage is low, allowance for loan losses isn't at worrisome levels, and it doesn't appear to be stretching its deposit base. Besides, with $54 billion in assets, if it ran into trouble it would hardly wreak havoc on the broader system (by comparison, B of A's assets are north of $2 trillion).

What does worry me, however, is the sheer fact that the idea is still floating around that 100% financing for a home purchase is a dandy idea. It's Navy Federal today, and maybe it doesn't get burned. But how long is it before a lesser lender with weaker controls steps up with a competing offer? And for stretched consumers who believe they deserve not only a house, but that bigger house over there, who are they going to borrow from: the bank that actually requires them to have cash available, or the one that makes that house seem magically free?

If we start to go down that road again, the outcome will be pretty clear. And here's a hint: It won't be different this time.

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