NATNews Blog > July 2015 > Low Down Payments: It's Different This Time

    Low Down Payments: It's Different This Time

    7/27/2015 11:45:22 AM
    In the Freddie Mac U.S. Housing Market Insight & Outlook for July, it showed how low down payment initiatives are different this time in extending the opportunity for homeownership to qualified borrowers who might otherwise be locked out.

    "By lowering down payments, programs like Home Possible Advantage extend the opportunity for home ownership to qualified borrowers who might otherwise be locked out,” said Freddie Mac Chief Economist Sean Becketti. “Previous research has found that reduced down payments can increase the relative probability of homeownership among some groups by over 25 percent. As long as the underwriting process bars the return of the layered risks prevalent in the pre-crisis era, lower down payments are not a cause for concern. Home Possible Advantage strikes the right balance – increasing affordability while incorporating the best practices of post-crisis underwriting."
     
    A video preview, along with the complete July 2015 U.S. Housing Market Insight & Outlook is available on the Freddie Mac website.
     
    Insights from the current report include:
    • Pre-crisis low down payment underwriting allowed layered risk, that is, the combination of multiple features that amplified credit risk. 
    • Post-crisis low down payment underwriting controls credit risk by requiring features that reduce risk, such as fixed payments, borrower-based underwriting, reliable appraisals and more.
    • Borrower irrational exuberance has been replaced by realistic expectations, so even some consumers who could qualify for a mortgage are choosing to rent, at least for a while longer.
     
    Freddie Mac also reported that it expects housing starts to increase 14 percent and single-family mortgage originations to increase 8 percent for 2015.
     
    The GSE also revised its Q1 GDP, raising projections for 2015 to 2.2 percent, up from 2.0 percent last month. It revised the house price forecast down to 4.4 percent in 2015. But, the company said, it expects solid house growth to persist longer so increased the forecast for 2016 to 3.9 percent up from 3.5 percent in last month's forecast.