Good News for Workout Experts, Bad News for Uncle Sam.(Column)

Workout specialists and scratch-and-dent servicing artists start your engines. Uncle Sam is about to deliver an early Christmas present. It's called the "zero downpayment" mortgage which means if the loan goes south, the Federal Housing Administration (Uncle Sam) will pick up the tab. Is this a great country or what?

But before my comments get even more sarcastic, let me just say that I'm 100% in favor of the "American Dream of homeownership." My wife and I are homeowners, so were our parents and grandparents. We expect our daughters one day will be homeowners, too. Plenty of my forebears back in Italy were homeowners, too, except for my great grandfather, but he was a thief (eventually he reformed) and a stowaway, but that's a story for a different column, one on immigration and mortgages.

Yes, homeownership is great for the country, great for the mortgage industry, and a major building block of stable, healthy communities. But HUD's decision to offer a zero down mortgage - where Uncle Sam picks up the tab - is a bad idea.

Here's why: the delinquency rate on FHA loans is at an astronomical 12.54%. The VA rate is 8.03%. The foreclosure rate on FHA loans is 2.80%. What's the delinquency rate on conventional ("A" paper) loans? Answer: 2.54% - that's right, a full 10 percentage points lower. (These figures are courtesy of the Mortgage Bankers Association.)

So, why then is Uncle Sam (courtesy of HUD and FHA) floating the idea of a zero down FHA loan? Can you spell P-O-L-I-T-I-C-S? The White House mentions the zero down loan in its new fiscal 2005 budget. It also notes that an additional 150,000 homebuyers would qualify for the loan in the first year.

Maybe, it's really part of President Bush's plan to increase employment. After all, at least 12% of those 150,000 loans will go delinquent, which means more work for folks who make their living off of bad loans. The more ...