Presidential candidate Kamala Harris' interest in providing $25,000 grants to address affordability challenges for homebuyers is spurring a variety of counterproposals. Most interesting is the return of the Federal Housing Administration's zero-down lending initiative.
The idea of taking out loans without FHA insurance seems questionable, given that the idea first surfaced as a legislative proposal demonstrating the importance of equity prior to the housing crash, but once securities An expert who oversaw Ginnie Mae, the decentralized government loan guarantee company, said the numbers were as follows: Performed support.
DPA-subsidized government-insured loans, which effectively exempt borrowers from paying down payments, are now 1.3 percentage points higher than the existing loan-to-value ratio limit, according to September figures reviewed by Tozer. It showed a serious delinquency rate.
“The risk is minimal,” said Ted Tozer, former president of Ginnie Mae and one of the authors of a recent Urban Institute blog on the subject. “Why put up such huge barriers for marginal risk?”
From a cost perspective, Tozer and his co-authors Michael Stegman and Richard Greene, who also held federal posts, found that the average loss for an FHA portfolio with a 0% decline is about 0.44% of the principal value, or We estimate that each case will cost less than $1,500. Note that the outlay is much lower than grants or down payment assistance.
“If we had to choose the most efficient way to solve a math problem with the least risk to taxpayers, we would be better off not having a down payment requirement, even if it meant a small increase in defaults. I insist,” he said. David Battany, executive vice president of capital markets at Guild Mortgage.
“Critics will say that if there is less skin in the game, there will be a greater chance that borrowers will walk away,” he added. “My counter-argument to that criticism is that if a borrower is down 3.5% and real estate commissions are higher than that, they already have negative or zero equity anyway.”
Underwriting standards are also much tougher than they were during the Great Financial Crisis, when high loan-to-value ratios caused mortgage performance to suffer, he said.
Other housing policy experts agree that there may be some resistance to the idea given the historical risks associated with insufficient down payments, but that it could be viable with safeguards. said.
“A lot of people will jump on this as some kind of foreshadowing of the mortgage crisis and we haven't learned anything, but I don't think that's true. We've learned a lot. The question is, will we continue like this?'' How can we put the lessons into practice? ” David Dworkin, President and CEO of the National Housing Council.
“There are a few key things you need to do to get a zero down payment home loan, because there is no doubt that the higher the down payment, the better the performance and the lower the loss,” he added. .
Dworkin's proposed restrictions include maintaining other strong FHA underwriting standards, tying the program to similar counseling requirements that some down payment assistance providers already have in place, and ensuring that borrowers This includes measures to secure reserves.
“Proper management is essential so that people don't set themselves up for failure and their American dream becomes a nightmare,” he said.
While the 0% down concept may lead to resistance from down payment assistance providers, Tozer's intent is not to take current down payment assistance providers out of the market, but to shift support toward closing costs. He said he would encourage them to do so. He also proposes limits and guardrails for 0% down loans.
The Department of Housing and Urban Development expressed some appreciation for the concept's revival, but suggested it would need to be taken up by lawmakers to make it a reality. According to the Urban Institute blog, the original version of this concept was supported by a 2004 House bill, a Congressional Budget Office report, and the 2005 HUD budget proposal.
“We appreciate all dialogue and suggestions on how the Federal Housing Administration can strengthen its programs to expand access to mortgage financing for homebuyers across the country,” a HUD spokesperson said. “Despite public interest, adding a product of this type would require Congressional action.”
Dworkin, who has held federal finance and housing positions in both Republican and Democratic administrations, said the idea does have value in terms of its potential for bipartisan appeal, and he believes it could be a pilot. He suggested that it could work if it continued alongside existing DPA options.
“As a pilot, I think it makes a lot of sense,” he said. “If you want to be successful, you need to take a variety of approaches, so supporting existing down payment assistance programs with a track record of success should always be part of your strategy.”
