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492 Dissenting Statement

77
to a request from President Clinton.” Th e fi rst paragraph of Chapter 1 stated: “Th e
purpose of the National Homeownership Strategy is to achieve an all-time high level
of homeownership in America within the next 6 years through an unprecedented
collaboration of public and private housing industry organizations.”
Th e Strategy paper then noted that “industry representatives agreed to
the formation of working groups to help develop the National Homeownership
Strategy” and made clear that one of its purposes was to increase homeownership by
reducing downpayments: “Lending institutions, secondary market investors, mortgage
insurers, and other members of the partnership should work collaboratively to reduce
homebuyer downpayment requirements. Mortgage fi nancing with high loan-to-value
ratios should generally be associated with enhanced homebuyer counseling and,
78
where available, supplemental sources of downpayment assistance.” According to a
HUD summary, the purpose of the Strategy was to make fi nancing “more available,
79
aff ordable, and fl exible.” [emphasis supplied] It continued:
Th e inability (either real or perceived) of many younger families to qualify for a
mortgage is widely recognized as a very serious barrier to homeownership. Th e
National Homeownership Strategy commits both government and the mortgage
industry to a number of initiatives designed to:
Cut transaction costs through streamlined regulations and technological and
procedural effi ciencies.
Reduce downpayment requirements and interest costs by making terms more
fl exible, providing subsidies to low- and moderate-income families, and creating
incentives to save for homeownership.
Increase the availability of alternative fi nancing products in housing markets
80
throughout the country. [emphasis supplied]
Reductions in downpayments, the area on which HUD particularly
concentrated in pursuing its AH goals and the National Homeownership Strategy,
are especially important in weakening underwriting standards. Table 4, below,
based on a large sample of loans from the 1990s, shows the risk relationships
between downpayments and mortgage risks. It is particularly instructive to note
that when low downpayments (i.e., high LTVs) are combined with low FICO scores
(subprime loans) the expected delinquencies and defaults are multiplied several
fold. For example, when a loan with a FICO score below 620 is combined with a
downpayment of fi ve percent, the risk of default is 4.2 times greater than it would be
if the downpayment were 25 percent.

77 HUD, “Th e National Homeownership Strategy: Partners in the American Dream,” available at http://
web.archive.org/web/20010106203500/www.huduser.org/publications/affh sg/homeown/chap1.html.
78 Id., Chapter 4, Action 35.
79 Th e term “fl exible” has a special meaning when HUD uses it. See note 8 supra.
80 HUD, Urban Policy Brief No.2, August 1995, available at http://www.huduser.org/publications/txt/
hdbrf2.txt.