Subprime 2.0?

HOCMN September 9, 2010

Edward Pinto, the Chief Credit Officer of Fannie Mae back in the 1980’s, has written an Op-Ed for Bloomberg titled “Subprime 2.0 Is Coming Soon to a Suburb Near You” that talks about no-money down and lowered credit score requirements for government-backed loans.  [Fair warning: this op-ed is takes an EXTREMELY negative view of the loosened underwriting standards […]

Edward Pinto, the Chief Credit Officer of Fannie Mae back in the 1980’s, has written an Op-Ed for Bloomberg titled “Subprime 2.0 Is Coming Soon to a Suburb Near You” that talks about no-money down and lowered credit score requirements for government-backed loans.  [Fair warning: this op-ed is takes an EXTREMELY negative view of the loosened underwriting standards that became prevelant in the mid-2000’s.]

One of the more interesting quotes in the article is where he cites the number of no-money down mortgages (or extremely low-money down) as a percentage of all loans:

In 1990, one in 200 home-purchase loans (all government insured) had a down payment of less than or equal to 3 percent. By 2003, one in seven home buyers had such a low down payment, and by 2006 about one in three put no money down.



Visually… this is what I’ve come up with:
 


Click to Enlarge

Now… Pinto believes we will to return to an environment of subprime lending that he refers to as “Subprime 2.0,” as the FHA continues to accept borrowers with low Fico scores and minimal down payments.

For example, the FHA’s average down payment is just 4 percent,” he wrote. “Even this meager amount disappears after adjusting for seller concessions and financed insurance premiums.


Pinto is calling for a return to hefty down payments – – a minimum of 20 percent down, with few exceptions, and believes documentation should be “iron-clad.”

NOW, couple of questions for our readers (feel free to voice your opinion in the comments): 

  • What would this mean for those of us working on affordable housing issues? 
  • Would this cause more problems than it solves?
  • Are there other solutions to affordable housing… that don’t involve simply lowering lending standards? 

One of the conferences that takes up the issue of affordable housing… and discusses related policy issues is the “Homes For All” Conference.  You can learn more about the conference here

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