Philly far-left mayor launches taxpayer-backed mortgage program for high-risk lenders

Speaking at Axios Live on Tuesday, Parker said, “There is an affordability and workforce housing crisis across the nation. Philadelphia is not unique. Any economist you would speak to, they will tell you we have a challenge with supply and production. But we have to answer this question: You can have all of the supply and production in the world, but if your residents can't meet the underwriting criteria to get approved for the mortgages, they will not be able to occupy those units.”

“Imagine getting a mortgage, a 30-year commitment with no PMI, so no private mortgage insurance, and we have, in essence, brought down the interest rates. But here is the part that's extremely important for the banking industry. The city of Philadelphia has created what we reference as a loan loss reserve, and so we need Philadelphians who have less-than-perfect credit to be able to qualify. So, if you have a credit score of 620, we want you to—the lending industry, banking industry, to say, ‘Hey, we'll take this risk,’ but the city of Philadelphia proper shoulders it.”

Per Axios, the program would provide first-time homebuyers with a 30-year fixed-rate loan, with mortgage rates being 1 percent below current market rates. Down payments are capped at no more than 3%. Most mortgages ask for a 20% downpayment. Private mortgage requirements will be waived in the new program, and the city will use a reserve fund of tax dollars to cover lender losses if borrowers default. The Philadelphia Housing Development Corporation said that “A portion of the interest will be paid by public funds.”

Parker said the program is modeled after one in Massachusetts, which has assisted more than 22,000 low- and moderate-income buyers in purchasing homes since 1990.

Drexel University economist and real estate finance expert Kevin Gillen told Axios that the program could end up with buyers in homes that require repairs and maintenance they can’t afford. It’s also possible that those who took out loans but are high-risk find themselves unable to pay those loans.

“You don't want to increase homeownership in the short term if it just increases the foreclosure rate in the long term,” he said.

This is what happened in the early 2000s. At the turn of the century, lenders increasingly offered mortgages to people who might not have qualified for traditional home loans because of poor credit, small down payments, or difficulty affording their monthly payments. These were known as subprime mortgages.

This launched a surge of people buying homes, with home prices rising as a result. The housing bubble eventually crashed, and borrowers defaulted on their payments, leading to mass foreclosures.This led to the Great Recession of the late 2000s.