Zero-Down Mortgages Still Available

PrintPrint

While the Department of Housing and Urban Development is the federal agency responsible for most housing subsidies, the departments of Veterans Affairs and Agriculture also subsidize homeownership. In fact, despite the problems caused by federal policies to put people in homes with little skin in the game, the VA and USDA continue to facilitate zero-downpayment mortgages.

Although default rates for mortgages backed by these agencies are lower than mortgages backed by HUD’s troubled Federal Housing Administration, their mere existence is problematic. The programs are continuing a practice that even pro-subsidy policymakers such as Barney Frank now recognize is a mistake. 

From a Boston Globe article on a Massachusetts program that offers zero-downpayment mortgages through a contract with Fannie Mae:
A top official at the Federal Housing Finance Agency, which oversees Fannie Mae, said recently that he plans to cancel the program after a contract between Fannie Mae and finance agencies — including MassHousing — expires in March. The loan product is available in three other states in addition to Massachusetts.
“I believe borrowers should have a down payment if they’re going to purchase a house,’’ said Edward DeMarco, acting director of the federal agency.
US Representative Barney Frank, a Newton Democrat and chairman of the House Financial Services Committee, agreed.
“I think a zero down payment is a mistake,’’ Frank said. “Homeownership is a good thing, but we make a mistake when we push the envelope too far. You don’t do people a favor.’’
The article cites the example of a couple with three young children who recently secured a zero-down mortgage backed by the USDA for a $220,000 home:
Laurie said they would not have been able to save enough money for a large down payment, but can easily afford monthly mortgage payments. Renaud works as a plant manager at a label company and earns about $50,000 a year. Laurie stays home with their children, including another child and three stepchildren who visit occasionally.
“We are so lucky this program is there for people like us,” she said.
Considering his salary, his family obligations, the size of the mortgage, and the state of the economy, it would appear that Renaud risks not meeting his payment obligations. Of course, with no skin in the game, he might be tempted to just walk away as countless others have done. So while the Renaud family may feel lucky now, taxpayers may not feel so lucky down the road.