Lowering Down Payments Increase Risk of Mortgage Default (see correction)

The housing bubble was apparently too far in the past for many of the people writing about housing to remember. Part of the problem was that many borrowers got loans that they were ill-situated to repay.

One of the factors that is a strong determinant of whether people will be able to pay a mortgage is the size of the down payment. The equity from a down payment serves as a cushion in bad times. It also reduces the risk to lenders, since this is money they stand to recover in the event of a d...