[Homestead] Bush zero-down payment on houses
tvoivozd at infionline.net
Tue Oct 5 14:50:49 EDT 2004
Just an October Surprise political gimmick, but with terrible economic
consequences to consumers and taxpayers, part of the
totally-discredited trickle-down Bush pack of tricks.
The effect is inflating house prices, very quickly and permanently
beyond poor and middle-class ability to pay, when the house is an
instant-gratification, finished, contractor-built product, rather than
mostly a home-owner-built, pay cash-as-you go across a longer period.
Zero cash-down would be fine if sweat equity were the real
down-payment---providing a real equity cushion, and an enormously
beneficial side-effect of teaching construction skills to
home-owners---an economic flywheel to sustain them during periods in
which their regular jobs disappear.
Sweat equity houses are always going to be small, a very good thing,
especially if the design makes modular add-ons (for cash) easy as family
space/function requirements change. Only small houses conform to the
ability-to-pay of the poor (and no small part of the middle-class).
The Boston Globe <http://www.boston.com/news/globe/>
Zero-down mortgage initiative by Bush is hit
Budget office says plan likely to spur more loan defaults
By Chris Reidy, Globe Staff | October 5, 2004
President Bush's weekend campaign promise that he will push legislation
allowing for no money down on some federally insured mortgages could
cost taxpayers as much as $500 million over four years because of a
higher rate of defaults, according to the Congressional Budget Office.
The election-year idea may appeal to those who can't save as fast as
home prices are rising. But some financial planners warn that
increasingly common no- and low-down-payment programs can be ruinous for
some consumers -- especially if home values decline.
If housing prices fall, consumers with little or no money of their own
invested in the home are more vulnerable to ending up with mortgages
larger than the value of the house.
And those who can't afford large down payments usually don't have enough
savings to serve as a cushion if someone in the household gets sick or
is laid off.
"If you're really stretching, maybe you should back off and look at a
less expensive house," said Joan Gray Anderson, a professor of family
financial counseling at the University of Rhode Island.
Bush proposed zero-down-payment legislation earlier this year. The
Congressional Budget Office has contended for months that the proposal
would generate huge losses, an assessment that could be a stumbling
block for the bill's passage. But the Department of Housing and Urban
Development thinks the program could be run on a break-even basis.
Bush contends that reducing the required 3 percent down in the Federal
Housing Administration mortgage program to zero down would help 150,000
first-time buyers in the first year. Homeownership rates are now about
69 percent nationwide, compared to about 64 percent 10 years ago. The
FHA insures many private-lender home loans.
"To build an ownership society, we'll help even more Americans to buy
homes," Bush said in an Ohio speech to home builders. "Some families are
more than able to pay a mortgage but just don't have the savings to put
A spokesman for the campaign of Senator John F. Kerry said the plan will
help "relatively few families." Kerry's emphasis is on preserving
affordable-housing programs that he says Bush has slashed.
Meanwhile, low- and no-down-payment mortgages are available to more
people than in the past. A 30-year fixed-rate mortgage with a 20 percent
down payment is one of many options available today. Home buyers are
making smaller down payments on a percentage basis, and sometimes
choosing adjustable-rate mortgages or obtaining two mortgages on a purchase.
According to a 2003 survey by the National Association of Realtors, the
median down payment for a first-time home buyer equaled 6 percent of the
Several factors account for the reduced popularity of the traditional 20
percent down payment. In recent years, homes have been appreciating in
value by about 10 percent annually, said Denise Leonard, incoming
president of the Massachusetts Mortgage Association and a senior vice
president at Constitution Financial Group, a mortgage lender in
Wakefield. Such rapid appreciation helps to protect lenders in the event
of delinquencies, she said.
Meanwhile, rising home prices, and rising rents, make it harder for
first-time buyers to scrape together a down payment. The mortgage
industry has responded by offering more flexible products, Leonard said.
The industry takes steps to ensure that these products go only to
consumers who can show they have a good history of managing credit.
"You can't get these products if you're not creditworthy," she said.
But in Boston and Providence, said URI's Anderson, even with
no-down-payment mortgages, high prices can keep homes out of reach.
"There are not a lot of entry-level homes in these markets," she said.
The Neighborhood Assistance Corporation of America, a Boston-based
nonprofit advocacy group that provides housing services, has been a
pioneer in no-down-payment mortgages, offering them for a decade to
working-class consumers, said chief executive Bruce Marks. The group
came in for early criticism, he said, because of a belief that consumers
needed to have a financial stake in a new home.
The group's no-down-payment mortgages are similar to those the federal
government offered to veterans after World War II, Marks said, and its
track record shows that such loans are unlikely to be defaulted on.
MassHousing, the state's affordable-housing bank, has had a similar
experience in the two years it has been offering loans with no down
payment, said executive director Tom Gleason. They've performed well in
a strong housing market and are likely to be "common in the future," he
An unanswered question remains, he acknowledged: "We have no experience
of how these loans will perform when the market is weak."
Chris Reidy can be reached at reidy at globe.com.
© Copyright 2004 Globe Newspaper Company.
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