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Peter J. Wallison 493

Table 4. High LTVs enhance the risk of low FICO scores
81
Column 1 Column 2 Column 3 Column 4 Column 5 Column 6
Row 1 FICO Score ≤ 70% LTV 71-80% LTV 81-90% LTV 91-95% LTV Relation of
Column 5 to
Column 3
Row 2 < 620 1.0 4.8 11 20 4.2 times
Row 3 620-679 0.5 2.3 5.3 9.4 4.1 times
Row 4 680-720 0.2 1.0 2.3 4.1 4.1 times
Row 5 > 720 0.1 0.4 0.9 1.6 4 times
Despite these obvious dangers, HUD saw the erosion of downpayment
requirements imposed by the private sector as one of the keys to the success of its
strategy to increase home ownership through the “partnership” it had established
with the mortgage fi nancing community: “Th e amount of borrower equity is an
important factor in assessing mortgage loan quality. However, many low-income
families do not have access to suffi cient funds for a downpayment. While members
of the partnership have already made signifi cant strides in reducing this barrier to
home purchase, more must be done. In 1989 only 7 percent of home mortgages were
made with less than 10 percent downpayment. By August 1994, low downpayment
mortgage loans had increased to 29 percent.” [emphasis supplied]
82
HUD’s policy was highly successful in achieving the goals it sought. In 1989,
only one in 230 homebuyers bought a home with a downpayment of 3 percent or
less, but by 2003 one in seven buyers was providing a downpayment at that level,
and by 2007 the number was less than one in three. Th e gradual increase in LTVs
and CLTVs (fi rst and second loans combined to produce a lower downpayment)
under HUD’s policies is shown in Figure 4. Note the date (1992) when HUD began
to have some infl uence over the downpayments that the GSEs would accept.
Th at HUD’s AH goals were the reason Fannie increased its high LTV (low
downpayment) lending is clearly described in a Fannie presentation to HUD
assistant secretary Albert Trevino on January 10, 2003: “Analyses of the market
demonstrate the greatest barrier to home ownership for most renters are related to
wealth—the lack of money for a downpayment…our low-downpayment lending—
negligible until 1994—has grown considerably. It is a key part of our strategy to serve
low-income and minority borrowers.” Th e fi gure that accompanied that statement
showed that Fannie’s home purchase loans over 95 percent LTV had increased from
one percent in 1994 to 7.9 percent in 2001. 83

81 “Deconstructing the Subprime Debacle Using New Indices of Underwriting Quality and Economic
Conditions: A First Look,” by Anderson, Capozza, and Van Order, found at http://www.ufanet.com/
DeconstructingSubprimeJuly2008.pdf.
82 HUD’s “National Homeownership Strategy – Partners in the American Dream,” http://web.archive.
org/web/20010106203500/www.huduser.org/publications/affh sg/homeown/chap1.html.
83 ”Fannie Mae’s Role in Aff ordable Housing Finance: Connecting World Capital Markets and America’s
Homebuyers,” Presentation to HUD Assistant Secretary Albert Trevino, January 10, 2003.