Oct. 27, 2008 — Members of the Government Employees' Retirement System seeking to borrow money from the system to buy a home will now face a lower down-payment requirement, thanks to action taken Monday night by the GERS board.
Voting 3-1, the board approved a policy to allow members to pay no less than five percent down on home and land loans, compared to the straight 10 percent previously required.
The action does not change any other requirements for loan approval, nor does it change the interest charged by GERS, said board chairman Vincent Liger. The purpose of the action is to help members who have qualified for loans but have difficulty making the 10-percent down payment.
Trustees Raymond T. James and Marvin Pickering also supported the proposal.
"This gives members an opportunity to attain what for most of them would be a lifetime goal of owning their own home," James said.
Not all otherwise qualified members would benefit from the lower interest rate, James said. If a borrower puts less down, he will consequently be borrowing slightly more money, raising his monthly payments. Those who can afford the higher down payment would probably find it in their interest to make it and then have lower monthly payments.
Trustee Yvonne E. Bowsky vigorously opposed the measure, worrying that making loans too easy to acquire would be to invite the sort of problems that have convulsed the U.S. housing market and the world economy, saying the action would be "not only unwise … but fiscally irresponsible."
Liger and James protested that Bowsky misunderstood both the nature of the U.S. housing crisis and the proposed action. The collapse of the so-called "sub-prime market" was caused in part by people who should not have qualified for mortgages ending up with loans they couldn't afford. Adjustable-rate mortgages — which drove monthly payments far beyond what the borrower could pay — exacerbated the problem, and the packaging and trading of volatile mortgages by speculators all contributed to the economic meltdown, they said.
None of those factors are in play in the GERS action, James maintained. Borrowers must still meet the same financial requirements to qualify for the loan, and the rate is fixed at eight percent by the terms of the GERS rules. In fact, James said, with banks cutting rates to try to stimulate business, many qualified GERS members may find they can get a better deal at a commercial bank.
If that proves to be the case, James worried, it might cause a different problem for the GERS — people turning to banks for their loans, leaving the system with investment money that it can't lend out.
The motion to allow the five-percent down payment passed 3-1, with Bowsky opposed. Liger, James and Pickering all voted yes. Absent were Carver Farrow, Desmond Maynard and Leona Smith.
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