Event Summary: Low Down-Payment Mortgage Lending

The Center for American Progress hosted an event last Friday to look at the potential for low down-payment mortgages to create safe(r) homeownership opportunities for lower and middle-income Americans. While homeownership has been a primary asset building tool for many American families over the years, the need for a sizable down-payment has presented an obstacle for many lower-income, lower net worth families. In the post-Recession era especially, many Americans are struggling to finance a first home purchase. A panel of mortgage and housing experts took a look at the potential for low down-payments to facilitate homeownership for more people in the coming years. Joe Valenti, director of asset building for Center for American Progress, moderated.

Janneke Ratcliffe, from the Center for Community Capital at UNC-Chapel Hill, noted that we’re seeing the impact of the Recession on homeownership. The generational impact of wealth loss may be felt for years to come as young buyers struggle to come up with the funds for a down-payment without any familial support. Ratcliffe discussed the CAP Program, a homeownership program for lower-income people which has found that the type of mortgage product a family receives is highly correlated with the success of that loan. Her research suggests that coupling a low down-payment with fixed rates, solid underwriting, and buyer counseling can help mitigate the risks of the lower initial contribution. In the wake of the subprime lending crisis, Ratcliffe worries that we’re seeing regulation go too far in ways that eliminate promising pathways to homeownership for large chunks of the population.

Tom Callahan, the executive director of the Massachusetts Affordable Housing Alliance shared findings from a homeownership program his organization has run for the past 22 years. The program has served 17,000 Massachusetts residents with low down-payment mortgages and played an important role in creating a path to homeownership for residents of color and stabilizing areas hard hit by foreclosure. He expressed some hesitancy about the role online education is playing in homeownership counseling.  Because in depth counseling (both before and after home purchase) is part of the Massachusetts model and contributes to its success, Callahan is concerned that less in depth education will leave consumers vulnerable.

Next, the director of D.C.’s Department of Housing and Community Development, Michael Kelly, discussed the District’s various initiatives to promote homeownership. Kelly articulated that homeownership is a top priority because it helps neighborhoods remain stable and increases the city’s tax base. Demographic changes in D.C. due in large part to an influx of younger, wealthier, and whiter residents have strained both the affordable rental and home purchase markets. One key challenge he see is to “give folks who have lived through hard times a chance to live through the good times.” The Home Purchase Assistance Program is one effort to make that possible. The program assists low and moderate-income buyers make home purchases in the District and has served over 11,000 so far, including 250 people during 2012. Kelly explains that keeping long-standing communities of color intact in the face of gentrification requires continued support for programs that take a holistic approach to education, job opportunities, transit availability and other services.  

Mark Goldhaber, a mortgage expert and consultant, spoke next about the importance of borrower education alongside low down-payments. He wants to see cities and non-profits positioning residents and borrowers for success (which he defines as a low foreclosure rate). His work is summarized in a new paper that looks at the Home Ready Buyer program, a multi-sector approach to reducing foreclosure rates for people with low down-payment loans. Goldhaber is also concerned about the collateral damage to neighborhoods from widespread foreclosure. Because the success or failure of a mortgage loan has a demonstrated impact on the surrounding community, he wants to be sure policymakers take seriously these neighborhood effects.

While the subprime mortgage crisis gave low down-payment loans a bad reputation, several panelists noted, their potential to open homeownership to a broader set of the population is evident. The results from low down-payment mortgage and homeownership programs across the country should serve as the basis for policies and regulation moving forward. Together, the panelists made a compelling case that while predatory practices and dangerous products deserve close scrutiny, completely eliminating the option for low down-payments cuts many Americans off from a key wealth building strategy and will maintain various forms of inequality.