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31 » VISIT US ONLINE @ DSNEWS.COM CAN LOW-INCOME BUYERS OVERCOME THE DOWN PAYMENT HURDLE? Do all homebuyers need a lot of skin in the game? at's a question the Urban Institute asked, trying to find out whether buyers really need a large down payment to buy a house. Turns out, the answer is, maybe not. A new Urban Institute study of New Mexico-based homeownership support nonprofit Homewise suggests there could be an alternative‒‒and sustainable‒‒way to buy even if the buyer doesn't have a large down payment at the ready. Low- and moderate- income households still need adequate savings, low levels of debt, good creditworthiness, and a steady source of income if they want to move from renting to buying, according to the study. But the Homewise model seems to fly in the face of mortgage logic. Or at least mortgage expectations. e model works like this: Homewise offered two mortgage packages, for 80 and 18 percent of a home's value, respectively. e agency then resells the higher mortgage on the secondary market to raise capital for additional clients. But it holds on to the riskier second mortgage so that the client pays only a 2 percent down payment, while still eliminating the need for mortgage insurance. e agency services both loans, to monitor loan performance on each and intervene early if there is a problem. e approach counters the expected because keeping the riskier loan is not causing problems for Homewise. e study found the "riskier" borrowers pay their loans just as well as anyone else; maybe better. "ey actually have lower delinquency rates than similar households buying apart from the program," the Urban Institute stated. By the numbers, the study found that Homewise clients have "6.3 fewer 30-day delinquencies, 2.3 fewer 60-day delinquencies, 1.8 fewer 90-day delinquencies, and 1.1 fewer 180-day delinquencies in the first two years of their mortgage than a matched comparison group of purchasers." e reason for the lower delinquencies at Homewise is most likely due to the fact that the company doesn't pick fights it can't win, the Urban Institute noted. In other words, Homewise makes it a point to fit homes to budgets, without the additional monthly costs of private mortgage insurance. "e terms of the loans provided by Homewise are preferable to the terms of the piggyback loans that were common during the housing bubble," the study reported. "ose loans usually required an 80-10-10 split rather than the 80-18-2 split (which Homewise provides), and they often required the purchaser to pay closing costs on both loans." is, the report stated, means Homewise eliminates the need to pay double for things like origination fees and any other fees the lender charged. Another key reason the model seems to work well, the report stated, is that Homewise "also provides counseling, homebuyer education, real estate development, real estate sales, mortgage origination, and loan servicing, as well as an in-house incentivized savings program. e Institute sees the Homewise model as "an opportunity to break the wealth gap cycle" in home purchases. It also sees it as a way to reduce the race gap in homeownership. Compared to white buyers, black homebuyers tend to have less wealth, according to a Stanford University study. at typically means lower credit scores, as well. But the Urban Institute stated that the Homewise model could be a bridge to homeownership for families traditionally marginalized by the mortgage industry.

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