Scotsman Guide > News > November 2014 > News Story

 Enter your e-mail address and password below.


Forgot your password? New User? Register Now.

News Archives

Subscribe icon Subscribe to our weekly e-newsletter, Top News.

Research shows GSE 3 percent down program not so risky

Allowing the government-sponsored enterprises (GSEs) to guarantee conventional mortgages with downpayments as low as 3 percent may not be as risky as it may appear.

Researchers at the Urban Institute looked at recent low downpayment mortgages guaranteed by the GSEs and found that default rates for downpayments between 5 and 10 percent were similar to those between 3 and 5 percent.

The researchers looked at Fannie Mae loans issued before 2013 under a now-expired 3 percent down program. Loans originated in 2011 with a 3-5 percent downpayment defaulted at a rate of 0.4 percent, the same rate as loans originated with a 5-10 percent downpayment.

The default rate for 3-5 percent down loans originated in 2012 was 0.2 percent, and was 0.1 percent for the higher downpayment loans.

Those default rates, however, are for borrowers with credit scores above 700. Below that credit score threshold, the default rates increase, the researchers found.

In 2011, borrowers who put 3-5 percent down and had a sub-700 credit score defaulted at a rate of 0.7 percent — surprisingly, borrowers with similar credit scores who put down between 5 and 10 percent had a higher default rate at 1.4 percent. Of all borrowers with sub-700 credit scores, the ones who put down the least had the lowest default rate.

There was a similar story in 2012. The 3-5 percent downpayment borrowers with sub-700 credit scores had a default rate of 0.3 percent compared to 0.5 percent for borrowers who put down 5-10 percent.

Those default rates, however, are leagues lower than in 2007. In that year, loans to borrowers even with the best credit scores who put up to 20 percent down were defaulting at rates between 11 and 20 percent.

The researchers found that repurchase rates for low downpayment loans was also relatively low — 0.5 percent for all such loans between 1999 and 2013, while the rate for 5-10 percent downpayment loans during that same period was 0.4 percent.

“This analysis tells us that there is likely to be minimal impact on default rates as low-downpayment GSE lending gravitates toward borrowers with otherwise strong credit profiles,” Urban Institute researchers Taz George, Laurie Goodman and Jun Zhu wrote.

“And this makes sense because GSE loans are priced on the basis of risk, while Federal Housing Authority [FHA] loans are not. Thus, borrowers with high [loan-to-value ratios] and low FICO scores will find it more economically favorable to obtain an FHA loan.”


Questions? Contact Neal McNamara at (425) 984-6017 or

Bubble 0 Comments

By submitting this comment, you agree to comply with our Terms of Use.

The text exceeds the maximum number of characters allowed.

Are you sure you want to permanently delete this blog comment? This action cannot be reversed.

You must enable your community profile to use this feature.

Cancel Enable profile

You have flagged this post for inappropriate content.

Please explain below. Thank you.

Cancel Submit

Get the latest news and articles from Scotsman Guide straight to your inbox.

Send me the following e-mails:

Learn more about Scotsman Guide e-mails

Thank you for signing up to receive e-mails from Scotsman Guide.

A confirmation e-mail has been sent to the address you provided.

For questions regarding your e-mail subscriptions please contact or call (800) 297-6061.

Fins A Lender Post a Loan
Residential Find a Lender Commercial Find a Lender
Follow Us:Visit Scotsman Guide Facebook pageVisit Scotsman Guide LinkedIn pageVisit Scotsman Guide g+ pageVisit Scotsman Guide Twitter page


© 2017 Scotsman Guide Media. All Rights Reserved.  Terms of Use  |  Privacy Policy