@article {Fissel27, author = {Gary Fissel and Gerald A. Hanweck and Anthony B. Sanders}, title = {The Lowdown on Low-Down-Payment Mortgages: Is It Safe?}, volume = {31}, number = {1}, pages = {27--50}, year = {2021}, doi = {10.3905/jfi.2021.1.106}, publisher = {Institutional Investor Journals Umbrella}, abstract = {Low down payment mortgages were prevalent before the financial crisis, slowed down during the financial crisis, but have reemerged since the crisis. The Federal Housing Administration has a history of insuring 3\% down payment mortgages to help lower- and middle-income households purchase a home, but Fannie Mae and Freddie Mac recently have also introduced 3\% (and lower) down payment programs. In addition, mortgage innovation in the form of the {\textquotedblleft}wealth building mortgage{\textquotedblright} now adds the possibility of a 100\% loan-to-value (LTV) ratio. In this article, the authors examine the performance of low down payment (or high LTV) lending. They find that low initial down payment mortgages are significantly more likely to become seriously delinquent (90 days or more) than are mortgages with traditional down payments of 20\% or more.TOPICS: Fixed income and structured finance, MBS and residential mortgage loans, risk management, credit risk management, legal/regulatory/public policy, financial crises and financial market historyKey Findings▪ This study finds meaningfully accurate estimates of the likelihood of more severe delinquency payment status changes by using individual mortgage loan, borrower, and county-level risk factors as explanatory variables.▪ Low initial down payment mortgages are significantly more likely to become seriously delinquent (90 days or more) than mortgages with traditional down payments of 20\% or more.▪ Initial borrower and mortgage characteristics, such as loan to value, borrower documentation, or FICO score, are dominant factors in the likelihood of delinquency and default.}, issn = {1059-8596}, URL = {https://jfi.pm-research.com/content/31/1/27}, eprint = {https://jfi.pm-research.com/content/31/1/27.full.pdf}, journal = {The Journal of Fixed Income} }