It shouldn’t come as a surprise that one of the most vocal groups in favor of expanding the mortgage credit box is a trade body — the U. S. Mortgage Insurers.
In fact, they say there is little difference in the performance of 3% down mortgages compared to 5%, which are available backed by the Federal Housing Administration.
It's time to make good on offers to bring low down payment mortgages to more Americans, and the USMI said it is ready to help.
“Private mortgage insurance has been readily available to creditworthy borrowers in this market segment for many years, and those responsibly underwritten low-down-payment loans have a long track record of good performance – comparable in fact to 5% down-payment loans,” the trade group said recently.
In fact, they argue that the FHA shouldered too much of the low-down-payment market share for too long. They believe fewer loans backed by private capital equals more risk facing the taxpayers.
Plus the low down payment helps nurture the American Dream of Homeowners now that mortgage applications are at a historical low.
“At a time when the share of first-time homebuyers is declining, restoring access to these loans is an important option that would help creditworthy borrowers, especially first-time homebuyers, achieve affordable homeownership in a sensible and responsible manner.
"Wider availability of prudently underwritten 97% LTV loans would present many benefits for both consumers and taxpayers.”
The lower the down payment, of course, the longer mortgage insurance is necessary.
But to the credit of the USMI, a recent white paper supporting initiatives from Fannie Mae and Freddie Mac to widen the availability of home loans provides four solid reasons why this shift in mortgage lending is a good one.
Here are 4 reasons mortgage insurers support low down payment home loans:
1. Reduce taxpayer exposure
The largest net benefit is to the entire nation, as it turns out.
“Through the use of MI, a prudently underwritten 3% down-payment loan with MI actually reduces taxpayer exposure below a comparable 20% down-payment loan without MI.”
2. These loans perform, anyways
“MI has been readily available to creditworthy borrowers in this market segment for many years, and those responsibly underwritten low down payment loans have a long track record of good performance – comparable in fact to 5% down payment loans.”
3. These loans didn’t tank the economy, either
The USMI indicates low-down-payment loans are often cited as major contributors to the credit crisis. But, it’s not true, they argue.
“Fully documented low-down-payment loans were not the cause of the mortgage crisis, and Dodd-Frank requirements have removed the products that were. The return of 3% low-down-payment loans would have to be consistent with new Qualified Mortgage standards’ emphasis on responsible lending, and be fully documented.”
4. It’s the right thing to do, for all Americans
Salt of the earth Americans can’t buy homes with things the way they are. That needs to change. Firefighters, teachers, they say, could take decades to save up a 20% down payment, presumably renting in the interim. C’mon, what is this, Europe? These people need HOMES.
The FHA remains an option, but insurance for the life of the loan is the pits. With private insurance, the outlook is better.
"Loans with private MI offer borrowers an additional option, one that is not only highly competitive in terms of pricing, but also cancelable once the LTV has reached approximately 80%, thus providing substantial savings to borrowers. These borrowers would also benefit greatly from an opportunity to purchase while 30-year fixed rates are near historic lows."