A Troubled 'Ownership Society'
A combo loan such as those mentioned in the Atlanta Fed paper consists of two loans, one for 80% of the value of the house and the other for 10%, 15%, or even the entire 20% remaining. The reason for taking two loans instead of one big one is that
80% is ordinarily the maximum loan-to-value ratio for loans that are eligible for purchase by Fannie Mae (FNM) and Freddie Mac (FRE). When the borrower makes little or no down payment, he or she is more likely to walk away from the loan if the house loses value and return to being a renter.
http://www.businessweek.com/bwdaily/dnflash/content/oct2007/db20071019_946332.htm?chan=top+news_top+news+index_top+story Increasing Homeownership
• The President set a goal to increase the number of minority homeowners by 5.5 million families by the end of the decade. Through his homeownership challenge, the President called on the private sector to help in this effort. More than two dozen companies and organizations have made commitments to increase minority homeownership - including pledges to provide more than $1.1 trillion in mortgage purchases for minority homebuyers this decade.
• President Bush signed the $200 million-per-year American Dream Downpayment Act which will help approximately 40,000 families each year with their downpayment and closing costs.
The Administration proposed the Zero-Downpayment Initiative to allow the Federal Housing Administration to insure mortgages for first-time homebuyers without a downpayment. Projections indicate this could generate over 150,000 new homeowners in the first year alone.
http://www.whitehouse.gov/infocus/achievement/chap7.html