ZERO DOWN MORTGAGES: BENEFIT OR DETRIMENT? ECO 6226 Dr. Mikhail June 17, 2004 Christine Rotta

Mortgage Options  FHA  VA  Conventional

FHA Mortgages  3% down  Closing Costs May Be Financed  Private Mortgage Insurance  Higher Permissible Debt-to-Income Ratios  Credit History is Somewhat Flexible  Loan is insure by the FHA

VA Mortgages  Available only to those who have served in the United States Military  Lower Down Payment  Insured by the VA

FHA History  FHA was founded in 1934 under the National Housing Act  Designed to promote homeownership  Standards were relaxed under Clinton Administration  Bush continued the trend

Delinquencies Soared  Majority of delinquencies were on the new loans, with the relaxed standards  With less vested interest in the home, borrowers are more likely to abandon the home during difficult times

Zero Down Act  Current Legislative Initiatives to remove the down payment requirement to promote home ownership  “Sign and Drive” Mentality

If Relaxing the Standards Made Things Worse the First Time, Why Do It Again?

Suggestions for Improving the System  Education Programs  Tax Incentives for Down Payment Savings Similar to Existing Retirement and Education Plans Similar to Existing Retirement and Education Plans

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