Put Just 3 Percent Down and Own a House! (Or, Fannie Mae Fails to Learn From Its Mistakes)

Submitted for your approval,
from a
Fannie Mae press release dated December 8:

WASHINGTON, DC – Today, Fannie Mae (FNMA/OTC) announced an
option for qualified first-time homebuyers that will allow for a
down payment as low as three percent. Building upon Fannie Mae’s
successful lower down payment program offered through state Housing
Finance Agencies, the 97 percent loan-to-value ratio (LTV) option
will expand access to credit for qualified first-time homebuyers
that may not have the resources for a larger down payment.

This makes official a federal scheme Stephanie Slade
noted as pending back in October.

For those with short memories, the Community
Reinvestment Act which encoraged home ownership at all costs,
including those of finacial prudence, is implicated by economic
research in the great housing crash of a few years ago. Economists
Sumit Agarwal of the National University of Singapore, Effi
Benmelech of Harvard, Nittai Bergman of the Massachusetts Institute
of Technology, and Amit Seru of the University of Chicago
wrote two years ago:

Our empirical strategy compares lending behavior of banks
undergoing CRA exams within a given census tract in a given month
to the behavior of banks operating in the same census tract-month
that do not face these exams. We find that adherence to the act led
to riskier lending by banks: in the six quarters surrounding the
CRA exams lending is elevated on average by about 5 percent every
quarter and loans in these quarters default by about 15 percent
more often.

Fannie Mae and Freddie Mac (which also joins in the new round of
3 percent-down fun)
feature prominently as major promoters, under HUD direction, of
the federal government’s “affordable housing” scheme to stick
everybody under a roof that they couldn’t necessarily pay for. They
lobbied and arm-twisted banks to make the high-risk loans that led
to such an…interesting result (by which I mean meltdown).

Now, they’re back at it. But it will be different this time,
just because.