America needs more low-down-payment loans.
That seems to be the opinion of our government, anyway. The government agencies that drive most of the housing market arepushing for lower down-payment standards on mortgages, easing the 20 percent requirement that has become standard for much of the market.
The Center for American Progress approves: “We shouldn’t obsess about down payments,” said Julia Gordon, director of housing policy. “Research confirms that low-down-payment loans to lower-wealth borrowers perform very well if the mortgages are well-underwritten, safe and sustainable.”
This depends, of course, on what you think “perform very well” means. A low-down-payment loan made to someone with a good credit rating and a low debt-to-income ratio will perform better than a low-down-payment loan made to someone with terrible credit and a lot of debt. But it has a higher default risk than a mortgage made to a similar borrower with an adequate down payment, because when you start out with little equity, you’re apt to find yourself in foreclosure if you get into financial trouble.
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