Zero-down payment loans too good to be true Just when home
foreclosure rates started to decline a bit in Chicago, some crafty
lenders began touting amazing new shortcuts to homeownership. The latest financing
gimmick designed to add more froth to the dangerously bubbly market
for first-time home buyers is the proposal for a federally insured
zero-down payment mortgage program that would be available through
the Federal Housing Administration. Fortunately, the
consumer watchdogs are hard at work blowing away smoke so borrowers
can read the fine print. The National Multi
Housing Council and National Apartment Association recently told Congress
that a zero-down FHA loan program would likely hurt the very people
the government is trying to aid and would further divert limited housing
resources away from solving the nation’s most pressing problems. With FHA foreclosures
at an all-time high and talk of a housing bubble increasing, the NMHC
and NAA told the House Subcommittee on Housing and Community Opportunity,
that now is not the time to place more hard-working families in jeopardy. “Most policy
makers at all levels of government operate under the mistaken notion
that when it comes to homeownership, more is always better,”
said Doug Bibby, president of the NMHC, an advocate of boosting the
nation’s rental housing supply. “But the time has come to
ask whether our single-minded pursuit of homeownership is doing more
harm than good, especially when it comes to households with limited
financial resources and / or weak credit histories.” “Every dollar
allocated to home-ownership incentives is a dollar taken away from
other housing programs,” Bibby said. “And homeownership,
while worthy, is not the best tool to solve our most pressing housing
needs, including the affordable housing shortage, suburban sprawl
and the need to house our aging population.” Bibby also cited
the following evidence that suggests the homeownership envelope has
already been pushed too far: •Although
home foreclosure starts have declined in Chicago for two consecutive
years, nationwide foreclosures of conventional loans are near record-level.
FHA foreclosures are at their highest level ever and are still climbing. “Some housing
advocates say now is the worst time for foreclosures in some parts
of the nation since the Great Depression,” Bibby said. •In Indianapolis,
clusters of foreclosed homes are emerging. One block of older rowhouses
has 20 vacant homes. FHA repossessions in Indianapolis are growing
and are depressing prices in neighborhoods where they are concentrated.
The sheriff responsible for Indianapolis reported 5,500 foreclosures
in 2002 compared to about 1,000 a year in the mid-1990s. “Many people
assume that households with severe cost burdens, such as paying more
than 50 percent of their income on housing, are renters,” Bibby
said. “But our aggressive homeownership policies are pushing
more and more owners into unaffordable situations.” According to the
U.S. Department of Housing and Urban Development, the only group whose
housing conditions worsened between 1999 and 2001 were low- and moderate-income
owners, not renters. A Harvard University
study reported that twice as many owners as renters pay half of their
income for housing. From 2000 to 2003, the number of lower and lower-middle
income homeowners with severe cost burdens grew by more than 1 million. Homeownership
is more expensive for the very households less able to handle it,
Bibby said. “Lower-income
and moderate-income households purchase a disproportionately larger
share of older housing that depreciates faster and requires more frequent
and costly maintenance,” Bibby said. “Too many people naively
think that the ‘gift’ of a down payment is enough to make
successful homeowners. But they fail to consider the true carrying
costs of ownership.” Experts estimate
that it takes another 40 percent of a homeowner’s principal and
interest to cover property taxes, property insurance and routine maintenance
and repairs. Bibby said low-
and moderate-income home purchasers are also more likely to buy in
neighborhoods with declining house prices. “One study
of housing appreciation in Miami showed that appreciation rates are
far more volatile over time in low-income and high-minority tracts,”
he said. “As a result of our aggressive policies, many families
find themselves with no cash reserves and just one paycheck away from
financial disaster if their incomes decline, their house values fall
or expensive repairs are required.” While homeownership
can play a role in stabilizing neighborhoods, Bibby said it could
only do so if new homeowners are successful. “If families default
and abandon their houses, then cities, counties, towns and school
districts also lose tax revenue and incur higher costs associated
with vandalism and other social problems,” Bibby said. |