7 Views on the Viability of Low Down Payment Mortgage Lending
February 10, 2015 2:53 PM
To help jumpstart a moribund home purchase market, Fannie Mae and Freddie Mac have launched 3% down payment mortgage programs, while the Federal Housing Administration cut its monthly mortgage insurance premium. These steps ease the path to homeownership for consumers who do not have a lot saved for a down payment. Here are seven views why the move is good or bad for the mortgage industry and consumers. Image: iStock
Strong Public Awareness
The mainstream media has picked up on the story and as a result, lenders like 360 Mortgage Group expect to see an increase in applications. And the CEO of homebuilder D.R. Horton added the media attention has consumers talking about buying a house for the first time in a while. Image: iStock
Return of Risky Lending?
Consumers who make a lower down payment are a greater risk for delinquency and foreclosure, said U.S. Rep. Jeb Hensarling, R.-Texas, during Federal Housing Finance Agency Director Mel Watt's recent appearance before the House Financial Services Committee. Image: iStock
Weak Link Between Down Payment and Default
But others contend that there is a minimal connection between how much a buyer puts down on a home and whether monthly payments are made. "Credit score, income and reserves have much more to say than down payment," said Brian Koss, the executive vice president of Mortgage Network. Image: Fotolia
Low Wages Stifle Demand
"You can't underwrite your way out of an economy where incomes have remained flat over the past 20 years," Sam Khater, the deputy chief economist at CoreLogic, said. Image: iStock
New Opportunity to Refinance and Save Money
Even FHA borrowers who purchased in the past three years are potential refinance candidates. But originators must be careful and consider all of the financial calculations to ensure borrowers don't pay more in the long run, said Alice Alvey, head of Indecomm's mortgage learning division. Image: iStock
Keeping the Status Quo
The new efforts won't do anything to help bring private money back into the mortgage market. And since government enterprises will remain the main source of financing, "taxpayers are left holding the bag," said U.S. Rep. Ed Royce, R-Calif. Image: Fotolia
Responsible Buyers Only
When announcing the FHA premium cut, President Obama said the government will not finance homes that people cannot afford. "You're going to be out of luck. These rates are for responsible buyers." Image: iStock
