Much attention has been directed at Federal Housing Finance Administration (FHFA) Director Watt’s recent announcement that FHFA and the GSEs are working on guidelines to expand access to 3 percent low down payment mortgages. The reaction has been somewhat surprising.
At a time when policymakers are looking to reduce the government’s role in housing finance while also improving access to affordable homeownership, prudently underwritten 3 percent loans would help accomplish these goals in a sensible and responsible manner, with clear benefits for consumers and taxpayers.
First, such a move would help reduce taxpayer exposure. The GSEs require the use of private mortgage insurance (MI) for these loans, providing substantial first-loss protection for taxpayers in the form of private capital.