100% financing may start better than it ends


Washington -- Here's the deal: You sign up to buy a house and apply for a mortgage, and we'll let you borrow the full price of the property with no down payment.

That's right: 100 percent financing, not a dollar out of your pocket, even if the mortgage amount goes as high as $315,000.

Sound enticing? At least one large, multistate homebuilder -- Kaufman and Broad Home Corp. -- hopes it will be attractive enough to sell a bumper crop of new houses this spring.

Other builders and affiliated mortgage firms may have to take the plunge into zero-down mortgage money as well, say industry experts, just to hold onto market share.

But is 100 percent financing a smart idea for consumers -- or for mortgage companies and builders, for that matter? Does it make sense for you to hock your house to the hilt? Here are a few thoughts on what's been turning into a significant -- and some say disturbing -- trend in American homeowner mortgage debt patterns.

Though only a small percentage of mortgage loans closed thus far this year are for 100 percent of property value, nearly one-third are at 95 percent of value or higher. New federal housing data reveal that 29 percent of newly originated mortgages now carry "loan-to-value" (LTV) ratios of 95 percent and up.

In 1989, by comparison, just 6 percent of all new home mortgages were 95 percent or higher.

Should this be worrisome? One of the mortgage industry's top research consultants, David Olson, president of Columbia, Md.-based David Olson Co., thinks so.

"Everyone's jumping into it [high LTV lending] as a way to crank up their loan volume or to sell houses, and I'm very concerned. We're going to see very significant defaults and foreclosures from loans like these because the buyers can't afford the houses and they've got no stake in them."

The National Association of Home Builders' top mortgage staff executive, David Ledford, said he couldn't comment specifically on Kaufman and Broad's zero-down program, but noted that "all the studies show that the more money buyers put down, the lower the likelihood they'll default. Obviously you take on extra risk when you go to 100 percent."

Before signing up for such a deal -- from any source -- ask yourself:

* What if, sometime down the road, one of our two incomes disappears or declines? How will we keep this house, since we'll have no equity cushion to lean on?

* Do we really need a house so expensive that we literally can't afford a minimal down payment to acquire it? Perhaps a smaller, lower-cost home would put us under less financial pressure.

If you can answer both questions to your own satisfaction, have boundless optimism about your financial future, and your builder or lender says you qualify, then hey: Maybe nothing-down is for you. Otherwise, avoid it.

Kenneth R. Harney is a syndicated columnist. Send letters care of the Washington Post Writers Group, 1150 15th St. N.W., Washington, D.C. 20071.

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