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Don't Mandate Large Down Payments on Home Loans

March 1, 2011
Mortgage Lending

Recent proposals call for requiring prospective homeowners to make a 10-20 percent down payment when purchasing a home. This is seen--mistakenly--as "getting back to the way mortgages used to be made." In fact, low down payment home loans[i] have been a significant and safe part of the mortgage finance system for decades, bearing little resemblance to subprime and other alternative mortgage products that crashed our economy. And responsible low down payment loans are also a key to the recovery of our nation's housing market and economy.

CRL's paper discusses the following key points:

  • Between 1990 and 2009, more than 27 million mortgages were made with low down payments. These loans did NOT carry the risky features found in subprime loans.

  • Increasing down payment requirements would materially shrink the mortgage market with little increase in loan performance.

  • Based on average home prices, it would take 14 years for the typical American family to save enough money for a 20% down payment.

  • Homeownership remains a key driver of personal and national economic prosperity, and will be fostered by responsible low down payment loans.

[i] In this analysis, low down payment loans are defined as those with less than 20% down (80% Loan-to-Value) and excluding FHA/VA loans