Low-down-payment loans aren’t the root of all economic evil. In fact, they can do a lot of good — giving people access to homeownership, for example. That’s why some people in Washington are making it easier for you to buy a house with only 3 percent down.
That’s caused no end of hand-wringing in Congress, where House lawmakers called Mel Watt, one of the nation’s top mortgage regulators, to Capitol Hill to defend the low-money-down loans he’s putting in place at Fannie Mae and Freddie Mac.
“These are not risky loans. And we’ve made that assessment based on research, not based on politics,” Watt told the House Financial Services Committee, which writes the rules on banks and mortgages.
Watt didn’t change any minds, which is par for the course at these types of hearings. “All things being equal, a 3 percent down loan is riskier to the taxpayer than a 10 percent down loan,” committee Chairman Jeb Hensarling said.
That’s true! Even Watt agreed with him. But take note of the “all things being equal” part. A low-money-down loan can be as safe as any other when other factors are taken into account. Just ask the Navy Federal Credit Union, which for years has offered 100 percent mortgage financing to some of its members, many of whom are U.S. servicemen. The credit union knows the chances are excellent that its borrowers will pay their bills. Navy Federal’s no-money-down loans have a 1 percent default rate, compared to a rate of more than 4 percent for all residential mortgages.
If people can’t get loans that work for them, they can’t buy houses. Low-money-down loans are one small way to boost access to credit and homeownership while Washington ponders more meaningful repairs to our hobbled mortgage system.
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