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[Tvoivozhd <tvoivozd AT infionline.net>]

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.

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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 
money down."

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 
purchase price.

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 
said.

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.