How to Prevent Mortgage Default without Skin in the Game: Evidence from an Integrated Homeownership Support Nonprofit

Journal Article

How to Prevent Mortgage Default without Skin in the Game: Evidence from an Integrated Homeownership Support Nonprofit

Abstract

Barriers to home purchase exist for low- and moderate-income households that make it difficult for them to become homeowners. Lack of savings is generally found to be one of the greatest barriers to homeownership. In this journal article, we examine the effects of a homeownership support nonprofit in New Mexico's attempt to help low- and moderate-income households purchase homes by removing the savings barrier and providing a range of services, including a second mortgage that allows for a low down payment with no mortgage insurance. Results indicate that Homewise's clients avoid the savings barrier to home purchase, and that Homewise's clients perform better on their loans than similar borrowers. These results challenge the assumption that low-income households need to provide a large down payment to sustain a home purchase. Some households actually perform better on their loans than purchasers with larger down payments, given the correct support, structure, preparation, and selection.

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