Let's not repeat the same mistakes that led to the housing bubble

Housing bubble by Shutterstock.com

Article Highlights

  • America's homeowners have already experienced the horrific impact of the government's successful effort to loosen underwriting standards.

    Tweet This

  • Since 1975, one in eight families getting an FHA insured loan suffered from a foreclosure from their 30-year, fixed-rate mortgages with a small down payment.

    Tweet This

  • FHA reform can end the nightmare at FHA.

    Tweet This

A recent New York Times article entitled “Down Payment Rules Are at Heart of Mortgage Debate” reported that “lenders and consumer advocates — rarely on the same side of the issue — are now cautioning against down payment requirements.” Cited as justification was a study by the Center for Community Capital at the University of North Carolina at Chapel Hill. It found that only 2,500 borrowers had suffered a foreclosure out of 46,000 low-income homeowners who received traditional 30-year, fixed-rate mortgages with a small down payment. I‘ll call those 2,500 borrowers and raise 3.1 million families. Since 1975, one in eight of the 25 million families getting an FHA insured loan suffered a foreclosure from their 30-year, fixed-rate mortgages with a small down payment. The dashed American dreams of these families trumps the 2,500 in the UNC study. America’s homeowners have already experienced the horrific impact of the government’s successful effort to loosen underwriting standards that drove the boom that went bust. Let’s not repeat the same mistake.

Based on FHA’s 80 years of experience with tens of millions of loans, the solution is clear. Balance the size of down payment with a loan term ranging from 15- to 30-years along with a borrower’s willingness and ability to pay. Combine with best practices like risk sharing by originator/servicers and the nightmare at FHA can be put behind us.

 

Also Visit
AEIdeas Blog The American Magazine
About the Author

 

Edward J.
Pinto

What's new on AEI

Making Ryan's tax plan smarter
image The teacher evaluation confronts the future
image How to reform the US immigration system
image Inversion hysteria
AEI on Facebook
Events Calendar
  • 01
    MON
  • 02
    TUE
  • 03
    WED
  • 04
    THU
  • 05
    FRI
Wednesday, September 03, 2014 | 9:00 a.m. – 10:30 a.m.
From anarchy to Augustus: Lessons on dealing with disorder, from Rome’s first emperor

We invite you to join us for two panel discussions on how Augustus created order from chaos 2,000 years ago, and what makes for durable domestic and international political systems in the 21st century.

Wednesday, September 03, 2014 | 12:00 p.m. – 1:30 p.m.
Multiple choice: Expanding opportunity through innovation in K–12 education

Please join us for a book launch event and panel discussion about how a marketplace of education options can help today's students succeed in tomorrow's economy. Attendees will receive a complimentary copy of the featured book.

Thursday, September 04, 2014 | 12:00 p.m. – 1:30 p.m.
How conservatives can save the safety net

Please join us for a luncheon event in which our panel will discuss what conservatives can learn from how liberals talk and think about the safety net and where free-market economics, federalism, and social responsibility intersect to lift people out of poverty.

No events scheduled this day.
No events scheduled today.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.