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WASHINGTON – The Housing and Community Opportunity Subcommittee of the House Financial Services Committee held a hearing June 30 on proposed legislation to create a pilot program for zero-downpayment mortgages. The hearing focused on H.R. 3043 introduced by Reps. Patric Tiberi (R-Ohio ) and David Scott (D-Ga.) to set up a pilot program in the Department of Housing and Urban Development (HUD) that would allow the agency to issue zero-downpayment loans equal to 10% of the number of mortgages and loans insured during the previous fiscal year. The bill would permit HUD to set any additional requirements it considers necessary for the loans. The pilot would expire Sept. 30, 2010. Tiberi and Scott introduced a similar measure last year that cleared the House Financial Services Committee but died with the close of last year’s legislative session. Last year HUD said the plan would offset the risk by raising mortgage insurance premiums on these loans by $50 a month, on average. In his opening statement at the hearing on H.R. 3043, Subcommittee Chairman Rep. Bob Ney (R-Ohio) stated that, “Theoretically, downpayment requirements were established to assure the lender that a borrower would be less likely to default or risk foreclosure on a home if there was some personal investment stake. Before the invention of automated or computerized underwriting to determine credit scores, lenders believed that downpayments were one of the best techniques to assess the creditworthiness of a potential borrower.” He referred to the hearings conducted March 24, 2004 and a Full Committee markup on June 3, 2004 of the predecessor bill, and said that, “As we debated Cong. Tiberi and Cong. Scott’s Zero Downpayment proposal last year, we learned that the biggest obstacle to homeownership for most families is the inability to come up with enough cash to meet downpayment and closing costs. Minority families in particular are burdened by high down payment requirements.Lagging minority homeownership rates are a serious concern.” While noting that changes incorporated in H.R. 3043 from last year’s proposal “will help make the pilot program responsive to concerns that without adequate safeguards, zero downpayment requirements will lead to increased foreclosure,” Ney added that, “critics continue to state that it is unclear whether removing downpayment requirements could be a sound underwriting decision and whether borrowers without downpayment contributions from their own resources would pose a greater credit risk.” Among those testifying at the June 30th hearing were: Janis Bowdler, housing policy analyst, National Council of La Raza; and Mortgage Bankers Association Chairman Michael Petrie, president, P/R Mortgage & Investment Corp.

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