Wall Street Journal
Taking Credit for a Place Families Can Call Home
By Patrick Barta
July 05, 2000
When Gretchen and Johnny Navarrette went searching for a house near Dallas last year, they ran into a wall. They couldn't afford the $8,000 or so lenders wanted them to pony up for a down payment. 'So we gave up,' Mrs. Navarrette says.
They tried again this year. Not only did they get a loan, but they had to put down only about $1,300, just 3% of the cost of their $45,000 house. 'We thought, 'Whoa, this is easier than we thought!' says Mrs. Navarrette, 26 years old. The Navarrettes' lender, Cendant Corp.'s Cendant Mortgage unit, overlooked some of their credit blemishes and accepted 3% down rather than the traditional 10% to 20%. While many may worry that the recent credit expansion could lead to higher numbers of defaults down the road, it has allowed thousands of Americans who once had little access to credit to take part in the boom economy.
More Americans now own a home than at any time in history, 67% at the end of 1999. Just last week, a study by the Federal Reserve Board and Freddie Mac reported that homeownership rates for minorities and low-income families have increased significantly in recent years.
Social scientists see that as a powerfully positive trend. Studies have shown that children who grow up in owner-occupied homes are less likely than those growing up in rental properties to drop out of school or become teenage parents. Homeowners are more likely to vote and join civic organizations than renters.
The expansion of credit is 'generally good news,' says Nicolas Retsinas, director of the Joint Center for Housing Studies at Harvard University, because it means more people can own a home. 'There have been abuses,' he says, referring to predatory lending, in which lenders charge usurious rates to lower-income families. But most lenders are fair, he says, and as for default worries, 'the vast majority of people who take out home loans pay them back.'
The Navarrette family, of course, could run into trouble some day, as could other low-income borrowers. Mr. Navarrette, 37 years old, earns about $45,000 a year working in a fiberglass factory; his wife doesn't have a job. The couple has two sons, about $3,000 in credit-card debt and only about $1,000 in savings. Several years ago, Mr. Navarrette's truck was repossessed after he was injured and had to miss work for about six months.
But Mr. Navarrette says the family is paying $445 a month on the mortgage, $5 less than for the duplex they used to rent.
And the family is thrilled with the new home. Since buying the house, Mr. Navarrette has cleaned up the yard and remodeled the bathroom, complete with a new floor and toilet. Down the line he hopes to install storm windows. 'I like owning a house because I know now that whatever I put into it, I can always get back out of it,' he says. 'It's a pride thing.'
Originally published in the Wall Street Journal. Copyright © 2000 Dow Jones & Company, Inc.