Critics of the White House plan to insure no-downpayment mortgages have little cause for concern, Housing and Urban Development Sec. Alphonso Jackson says.

Although the proposal has strong bipartisan support in Congress, a handful of opponents are worried that FHA default rates, already higher than those for conventional mortgages, will be even greater if borrowers don't have at least a minimal stake in the transaction.

But Sec. Alphonso told the Mortgage Bankers Convention in San Francisco late last month that they needn't worry.

"We know zero downpayments," the 13th HUD secretary said. "Once someone gets a chance to own a home, they are going to make their note because they know they have only one shot at it."

Sec. Jackson, the youngest of 12 children born to parents who did not complete high school, said the zero downpayment FHA loan is a "top priority" of the Bush Administration, as is a tax credit to boost the production of affordable housing.

Though claiming that housing is a nonpartisan issue belonging neither to Republicans nor Democrats but to "everybody in America," Sec. Jackson also told the mortgage bankers a week before the President's reelection that "President Bush is passionate about home ownership."

And he reported that the President is well on his way toward meeting his goal of creating 5.5 million new minority homeowners by the end of the decade.

According to the latest Census Bureau figures, 1.9 million minorities have become owners since President Bush made the pledge in 2001.

Noting that 51 percent of all minorities are now homeowners, Sec. Jackson declared that "more minorities than ever in the history of our country" have joined the nation's ownership ranks.

Proposed last January, legislation to allow the Federal Housing Administration to insure lenders against defaults on zero-down mortgages has been bottled up in the House Financial Services Committee. But lawmakers plan to push forward with the measure as soon as Congress comes back in session.

Under the plan, borrowers would be charged a "modestly higher" insurance premium than those who ante up some cash out of there own pockets at closing. On a $100,000 loan, the premium would be about $50 a month more, HUD says.

The higher premium should be enough to completely cover the cost of the program, meaning it will have no additional cost to taxpayers. Indeed, the FHA insurance program in general is a money-maker for Uncle Sam, in most years bringing in more money in premiums than it pays out in losses.

The White House believes the zero-down mortgage will put more families in homes of their own. Preliminary projections indicate that the new FHA product would generate about 150,000 buyers in the first year, buyers who otherwise would not be able to qualify for a mortgage.

"This initiative would not only address a major hurdle to home ownership and allow many renters to afford their own home, it would help these families build wealth and become true stakeholders in their communities," FHA Commission John Weicher said at the National Association of Home Builders convention where the proposal was first announced.

Published: November 10, 2004

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