Mortgage guarantor giants Fannie Mae and Freddie Mac both recently announced their intent to once again begin purchasing mortgage loans at 97 percent loan-to-value (LTV) in the case of first-time homebuyers. The result in housing policy circles has been a lively debate surrounding the wisdom of featuring such loans in an effort to jump-start purchases by would-be first-time homebuyers. For the record, there is a simple and straightforward logic to the rationale supporting the reintroduction of 97 percent LTV mortgages at Fannie Mae and Freddie Mac. Statistics show that 97 percent LTV mortgages work, and work well.
Down Payment Affordability Has Become a Significant Obstacle to Homeownership
It is no secret that a decline in overall affordability has had a negative impact upon homeownership rates in recent years. The Federal Housing Finance Agency tells us as much in its July 2014 Brief 14-02, “First Time Homebuyer Share and House Price Growth.”
“The tendency of the first-time homebuyer share to decline as house price growth increases is evident in the aggregate correlation nationwide, as well as in the correlations across most states and in most years between 1996 and 2013. This provides evidence for the second hypothesis that increasing house prices may price some would-be first-time homebuyers out of the market.”
via Setting the Record Straight on 97 Percent LTV Mortgages — They Work | Garrick T. Davis.
