Breitbart: How to Build an Antiracist Housing Bubble

Published by Breitbart News | September 1, 2022

When the housing bubble of the first decade of the twenty-first century burst, there was widespread agreement that one of the culprits was mortgages that required little or no money down.

The dark lord of no-money-down mortgages emerged this week in the form of a new home loan program from Bank of America that will not only offer buyers in predominantly black and Hispanic neighborhoods in selected cities mortgages with no money down, it will actually offer them a grant of $10,000 to $15,000 of equity in their homes. There will be no closing costs, no mortgage insurance required, and no minimum credit scores.

Many Americans assumed these were permanently a thing of the past. After the calamity of the 2008 housing bubble and the financial crisis, Congress and bank regulators sought to rein in exotic mortgages and require banks to hold on to risk for mortgages with low down payments.

In fact, low down payment mortgages never really went away. The Federal Housing Administration continued programs that permitted low and no-money-down mortgages. Fannie Mae and Freddie Mac launched new programs to allow buyers to put as little as three percent down. According to a 2019 study prepared for the Center for Household Financial Stability at the Federal Reserve Bank of St. Louis, the post-financial crisis share of conventional 30-year purchase loans requiring ten percent down or less rose from five percent in 2010 to 35 percent.

Over the years, the consensus view of low or no down payment mortgages has become more nuanced. A 2017 study by the Department of Housing and Urban Development, for example, found that lower proportional down payments are indeed associated with higher rates of delinquency and default. But it also found that compensating tradeoffs—such as requiring higher credit scores and lower debt-to-income rations—can offset that increased risk.

Lenders and self-styled housing advocates have forged an alliance to push for rules that allow them to lend to buyers without requiring a down payment. Now they have an ally in the White House. The Biden administration has been pushing for looser lending practices that it says will close the racial home ownership gap. Earlier this year the Federal Housing Finance Agency, which controls Fannie Mae and Freddie Mac, recommended down payment assistance, lower mortgage insurance premiums, and a credit reporting system that counts rent payment history for first time buyers.

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