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Saturday, January 21, 2006

Zero Down Payment Housing Loans

Following up on the note at the end of the post after this one on the costs and benefits of financial deregulation and innovation, a larger and larger percentage of housing purchases are being financed with zero down payment loans:

Down Payments' Downward Trend, by Tomoeh Murakami Tse, Washington Post: More than four out of every 10 recent first-time home buyers financed their purchases with no-down-payment loans, according to a study ... by the National Association of Realtors... That's an increase of about 54 percent over the past two years. Analysts say the upsurge means more buyers have entered the market who have a greater risk of defaulting on their mortgages. "That is a very big increase. ... almost certainly due to ... a lot of people feeling very stretched," said economist Dean Baker of the Center for Economic and Policy Research. They can't afford traditional mortgages, "prices are going through the roof and this is how they're responding."... Because those who apply for zero-down loans often have little or no savings, analysts say they are more likely to let mortgage payments lapse. In a worst-case scenario, such borrowers might be forced to sell, potentially flooding the market with homes and driving down values, which would affect all owners in an area. ... The median down payment -- the point at which half of the down payments were smaller and half larger -- for first-time buyers was just 2 percent. For all buyers, it was 13 percent, lower than the traditional 20 percent down payment...

    Posted by on Saturday, January 21, 2006 at 12:59 AM in Economics, Housing | Permalink  TrackBack (0)  Comments (8)

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