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Cost for Bush 100% FHA: $1/2 Billion

Taxpayer costs estimates vary for zero down mortgage

October 7, 2004

By PATRICK CROWLEY


President George Bush's election year promise of promoting zero down payment mortgages will apparently come with a cost -- as in $500 million.

That's how much the bipartisan Congressional Budget Office (CBO) says the legislation would cost taxpayers over four years through defaults on government insured Federal Housing Administration (FHA) loans.

"Zero down payment loans are viewed by private-sector lenders as having a higher risk of default than traditional mortgages with down payments," the CBO says in a written report.

Bush has long been advocate of offering government-backed mortgage loans that require no down payments. The U.S. Department of Housing and Urban Development (HUD) estimates than 150,000 people would annually qualify for the loans.

The president made the legislation, which is pending in the U.S. House, part of a speech he recently delivered to the National Association of Home Builders in Columbus, Ohio.

"To build an ownership society, we'll help even more Americans buy homes," Bush said in a transcript of the speech posted on the White House Web site. "Some families are more able to pay a mortgage, but just don't have the savings to put money down.

"So I'm asking Congress to pass my zero down payment initiative," he said. "We should remove the 3 percent down payment rule for first time home buyers with FHA-insured mortgages."

Democratic presidential John Kerry has not endorsed the bill, according to his campaign's Web site.

But plenty of mortgage-related industry groups have, including the Mortgage Bankers Association of America (MBA).

"A lot of consumers have the income to make mortgage payments and have a good credit record, but can't overcome the hurdle of a down payment," Kurt Pfotenhauer, MBA senior vice president of government affairs, said in a statement. "This legislation will give future homeowners a chance to own a home today. We encourage Congress to pass this legislation."

Also on board is the National Association of Realtors (NAR).

"A new zero down payment product will greatly expand the reach of the FHA program," the NAR said in a statement. "As housing prices continue to rise in many communities, prospective home buyers might qualify for an FHA loan but can't come up with the down payment and closing costs necessary for homeownership."

"The (legislation) would eliminate this problem and create a whole new market of home buyers," NAR President Walt McDonald said in the statement.

FHA Commissioner John C. Weicher told members of Congress in March that the program would not lose money.

But Dr. Ronald D. Utt of the Heritage Foundation, a Washington think tank, has written that the program would be "wasteful and extravagant."

"Although encouraging homeownership is a useful policy goal from a variety of perspectives, policies to promote it should be ones that create opportunity and encourage individuals to save, not seek handouts," Utt wrote in a statement. "At a time when the American homeownership rate is the highest in history, and when there are already exist less costly federal programs operated by (FHA) to assist lower-income/savings-impaired families to buy a house the (legislation)...is a wasteful and counter-productive extravagance.

"To suggest tha