In a previous post we
discussed President Bush's campaign promise to push for zero down federally insured loans. In the post we argued
against such a loan. Others agree.
The Congressional Budget Office says the idea could cost taxpayers $618 million from 2006 through 2009 as a result of higher than normal defaults. Evidence, including several reports from the HUD Inspector General, suggests that no-down-payment mortgages have significantly higher default rates than those where borrowers are required to use their own funds as a down payment. Put this on top of the fact that FHA loans already have higher default rates than other mortgages (2.25% vs. 11.66%) and we've got a bad situation.
In addition, financial planners warn that no-down-payment loans would be most disadvantageous to low income homeowners, especially in areas where home prices fall.
It's time to take this proposal off the table.
