Washington Report

Some zero-down success stories

 

kenharney@earthlink.net

Who says lenders need to charge you a cash down payment when you take out a mortgage in this era of hyper-strict underwriting?

Just about everybody:

•  The biggest sources of home loan money — Fannie Mae and Freddie Mac — won’t fund a loan without a down payment. Even then, if your down payment is less than 20 percent, they require private mortgage insurance.

•  Federal banking regulatory agencies have proposed — but have not yet finally adopted — a regulation requiring a 20 percent minimum down payment as the new standard for safe lending and best pricing.

• Congressional critics complain that the Federal Housing Administration’s current 3.5 percent minimum is part of the reason the agency is now in financial hot water. They want 5 percent down at least.

•  Financial analysts and mortgage industry experts argue that requiring some amount of “skin in the game” is essential to provide borrowers a stake in the transaction.

But hold on. Two prominent federally chartered credit unions beg to differ with this consensus opinion. They have quietly been running what they consider to be successful, carefully administered zero-down-payment programs for borrowers for much of the past two years, and are seeing almost no defaults or foreclosures.

The giant Navy Federal Credit Union, the largest credit union in the country with 4 million members, offers a zero-down option for qualified home purchasers coast to coast with no mortgage insurance. On top of that, it allows “seller concessions” — contributions by sellers of homes to defray buyers’ closing costs — as high as 6 percent of the home price.

The maximum loan amount is $1 million, but typical loans are in the $200,000 range. The program is targeted especially at first-time purchasers since they often are short on down-payment cash but may otherwise be creditworthy. Navy Federal says it has closed $740 million of these zero-down mortgages in the last 12 months alone. The credit union retains all loans in its investment portfolio and services them on its own.

As you might guess, there are some key qualifications: You have to be a member of the credit union or an immediate relative of a member. Members include all branches of the military, active and retired, along with defense-related contractors. The credit union estimates the total potential reach of eligibility nationwide is 12 million people. You need to pass underwriting muster in terms of income and reserves, and you need moderately good — not perfect — credit scores. Delinquencies on the program to date: well under 1 percent, according to Katie Miller, vice president for mortgage products.

Meanwhile, NASA Federal Credit Union has started marketing its own version of zero down. It is currently restricting loans to qualified members buying homes in the Washington, D.C., metropolitan area but could expand to other areas in the future, depending on local housing market conditions. Maximum loan amount is $650,000. Seller concessions are capped at 3 percent. Underwriting is rigorous and preferred FICO credit scores start in the mid-700s. Delinquencies over the past year and a half: zero, according to Bill White, NASA Federal’s vice president for real estate lending. Foreclosures: zero.

So what’s the significance of these two programs for the current debates underway on Capitol Hill and among banking regulators on the subject? Should the government mandate 20 percent down for everybody? 10 percent? Should zero down ever be permissible?

Tom Lawler, head of Lawler Economic and Housing Consulting LLC, says that as a general matter, “zero down payment is just bad public policy.” Frank Nothaft, chief economist for giant investor Freddie Mac, maintains that “the more equity [cash up front] you have, the better” the loan is likely to perform. Both Lawler and Nothaft agree, however, that with strict underwriting at application combined with intensive servicing — getting in touch with borrowers at the first hint of trouble and working with them — zero-down loans can perform well in healthy housing markets.

The Department of Veterans Affairs has offered zero-down loans for years yet has a lower default rate than FHA, which requires 3.5 percent. Though the Navy Federal and NASA Federal programs are relatively young, their minimal delinquencies to date could have an important message for regulators: The size of the down payment is just one piece of the puzzle. Smart underwriting and hair-trigger servicing that intervenes with solutions when borrowers hit rough patches may be just as important.

Or more.

Kenneth Harney is executive director of the National Real Estate Development Center.

Read more Home & Garden stories from the Miami Herald

  •  
 <span class="cutline_leadin">On demand: </span>Most tankless water heaters come on only when they’re in use.

    Ask a plumber

    Heating water can be a ‘tankless’ job

    The pros and cons of installing a tankless water heater.

  •  
At just 10 inches deep, the Mill console table from CB2 is perfect for decorating an empty hallway ($299).

    Furnishings

    For small spaces, console tables are ideal

    Decorating a small space can be like packing for a weekend trip. There’s room for only the essentials, so every piece should be useful, versatile and worth its weight. If space is a commodity, the console table is one of the most valuable pieces on the market.

  •  
This sleek, mid-century Telechron clock is a handsome collectible.

    Treasures

    Telechron products known for style, design

    Q: I grew up in the 1960s and ’70s with this Lucite clock on a table in my parents’ bedroom. I recently found it in a storage unit of their things and am wondering how old it is, and the approximate value. It still works and has great sentimental value and now has a place of honor on my bedside table. Any information you can provide would be appreciated.

Miami Herald

Join the
Discussion

The Miami Herald is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere on the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. Thank you for taking the time to offer your thoughts.

The Miami Herald uses Facebook's commenting system. You need to log in with a Facebook account in order to comment. If you have questions about commenting with your Facebook account, click here.

Have a news tip? You can send it anonymously. Click here to send us your tip - or - consider joining the Public Insight Network and become a source for The Miami Herald and el Nuevo Herald.

Hide Comments

This affects comments on all stories.

Cancel OK

  • Marketplace

Today's Circulars

  • Quick Job Search

Enter Keyword(s) Enter City Select a State Select a Category