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Just what we needed, the return of no money down mortgages

Posted by Scott Van Voorhis August 10, 2010 10:11 AM

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Is a little common sense too much to ask from the do-gooder set?

With foreclosure rates spiraling out of control, it would seem an odd time for the federal government and various state housing authorities to be promoting zero-down mortgages.

But that's apparently what state officials in Massachusetts, Wisconsin and Idaho are doing right now as they team up with troubled federal mortgage giant Fannie Mae to offer so-called "Affordable Advantage" mortgages.

The new initiative lets qualified, lower-income buyers with good credit get a mortgage without even having to meet the already low, 3.5 percent down required on most federally-backed mortgage loans.

Instead, these lucky few are eligible for 100-percent loan to value mortgages. In some cases a token downpayment, such as $1,000, is required.

Defenders of this seemingly hairbrained mortgage initiative - now being offered locally by MassHousing - point to the high credit scores of the borrowers. In Wisconsin, the minimum credit score of 680 is required.

Really, how in the world is someone who either can't scrape together a down payment - or who can only come up with a thousand bucks - a good candidate for homeownership?

Moreover, with no equity in the deal, these newly minted homeowners will almost immediately find themselves stuck with underwater mortgages. Maybe they missed the news over on Beacon Hill and down in Washington, but housing prices and sales are tanking with the end of the home buyer tax credit

Well, given one in four homeowners are now stuck with underwater mortgages, what's a few more?

But the most puzzling aspect of this is Fannie Mae's role in pushing this questionable new program.

Fannie Mae is already wallowing in red ink from all the bad mortgages it has backed, having piled up a $1.2 billion second-quarter loss. With foreclosures rising and prices falling, another big bailout is brewing there.

Not really the time then to double down on risky mortgages.

This blog is not written or edited by Boston.com or the Boston Globe.
The author is solely responsible for the content.

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About boston real estate now
Scott Van Voorhis is a freelance writer who specializes in real estate and business issues.

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