So far in 1994, we have done $92 billion in business with mortgage bankers, helping finance homes for one million families. Our work together has set the stage for us to do even more to help reach economically qualified families who face unnecessary barriers to their dream of homeownership.

Last year, at this forum, I spoke to you about an issue of great importance to the future of our industry. That issue was immigration.

This year, I want to speak to you about an issue of equal significance.

We know, from our analytical research, and even more so from our practical experience, that, aside from the evil of lending discrimination, first-time buyers face two major obstacles to homeownership. One, they have jobs that pay modest wages, so they can't afford a big monthly payment. And two, they don't have a lot of money in the bank, so they can't make a big down payment or pay much in closing costs.

Fannie Mae is working hard to reduce both of these barriers. We are developing new approaches to affordable lending that will help first-time buyers qualify for mortgages that have lower monthly payments.

We also are working to lower the hurdle to homeownership caused by the down payment and closing costs.

The need to really address the issue of low-down-payment lending in a comprehensive way is especially important now because we see a significant trend toward more high loan-to-value lending that is getting stronger.

In 1989, only 4.6% of our conventional loan business had an LTV of greater than 90%. In 1993, it was 6.9%. In June of this year it was 19.4%, and in August it was almost 26%. And the trend isn't limited to Fannie Mae. Low-down-payment mortgages are the only way some families can achieve homeownership. Study after study -- including Fannie Mae's National Housing Survey and the survey of mortgage bankers the MBA released in July -- shows that the single biggest barrier to homeownership for first-time buyers who are otherwise economically qualified is lack of a down payment.

We piloted our Community Home Buyers program in 1989 and introduced it nationwide in 1990. Since then, we have done over $13 billion in Community Home Buyers business, helping over 162,000 families. We encouraged greater flexibility in the Community Home Buyers program in 1992 and introduced the "3/2 Option." In 1994, we began experiments on 97% LTV loans and permitted refinances with LTVs above 95% on loans we own.

We have learned a lot from these programs. We want to use the lessons we have learned to make new options available to people who are now shut out of the system. We want to make them broadly available and easily understood.

I believe that an expansion of low-down-payment lending opportunities for people who otherwise could not buy a home will be an important part of the system of the future.

That's not to say a low-down-payment loan is the best option. It is clear that home equity at the time of origination is a very important predictor of default risk. We know that default is expensive for everyone -- lenders, insurers, investors, communities, and taxpayers. It is most expensive, and tragic, for the family that loses its home. We aren't doing anyone a favor when we give people mortgages they can't afford.

At Fannie Mae, we have been giving a great deal of thought and doing a great deal of analysis in recent months about how we can most effectively minimize default risk and maximize homeownership opportunities for American families.

Within the next few weeks, we will announce new products and additional risk management strategies to address further the two major obstacles to homeownership faced by most first-time home buyers: a modest income and a lack of savings.

As we develop our low-down-payment lending products, we are relying on eight distinct principles that we believe underlie successful high-LTV lending.

First, we need to increase risk-sharing among financially capable partners as a way to extend homeownership opportunities to people who otherwise would go unserved.

We think we can strengthen our partnership with mortgage insurers to achieve our twin goals of maximizing homeownership opportunities and minimizing risks for lenders and homeowners.

We also are very focused on the potential for risk-sharing with a broader universe of partners. Our goal is to combine the financing we provide with the help other partners can bring to the table, and so we work closely with HUD, nonprofits, state agencies, mortgage lenders, and with a borrower's family.

Second, we should target special low-down-payment loan initiatives to families who otherwise would not be able to buy a home, rather than to people who have sufficient savings and income, but simply prefer a low-down-payment mortgage.

Third, investment in technology is crucial. You've seen and heard a lot from Fannie Mae at this convention about technology. I hope what we have communicated is that we are absolutely committed to being a technology leader for the industry, to use our unique position to leverage investments in technology to benefit the entire industry, with a goal of reducing the time and cost of originating a mortgage. We want to be a partner with you, to define and develop technologies that will reduce the cost of origination and servicing and eliminate information barriers.

Technology also saves time, so underwriters can focus more on tough cases and can use the flexibility in the underwriting guidelines to qualify more borrowers with unusual circumstances for loans.

Fourth, responsible underwriting is the key to any financially sound lending program. Its importance is magnified when it comes to low-down-payment loans. Our underwriting standards recognize the higher risks as well as the unique circumstances that some high-LTV borrowers face.

Fifth, we must never lose sight of the importance of Fannie Mae's geographic diver-sification. It helps insulate the housing finance system from the effects of regional economic problems.

Sixth, we must invest in research, development, and experimentation. Fannie Mae is now engaged in a massive research and development program. We've committed $5 billion to underwriting experiments. and will develop at least 10 new lending products by the end of the decade. Those new products will have a very significant emphasis on low-down-payment lending.

Seventh, we need to intervene early in delinquencies to mitigate losses.

Our goal should be to help keep borrowers who face financial hardship in their homes by using delinquency prevention and foreclosure avoidance strategies.

These include modification of loan terms, such as refinancing the loan from an above-market rate to a market rate.

When foreclosure prevention isn't possible, we use preforeclosure sales to help reduce losses for both the lender and the homeowner.

This essay has been condensed from a talk Mr. Johnson gave at the annual conference of the Mortgage Bankers Association of America in Boston last week.

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