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Specialist - Here's the point you're missing from your quote. " Under Fannie Mae's pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 -- a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped."
Note that we're talking about 1 point above market rate,fixed rate, 30 year products..generally with a 5% d.pmt. requirement and debt ratio's that are slightly above the standard 1/3 of gross for housing expense. This is not the "standard" for the types of loans that are currently in default and foreclosure...typically an adjustable rate starting off as below market and escalating according to terms & conditions. The major problem hit when Mortgage backed securities became an investment option (deregulation) and this coincided with the big escalation in the housing market...not some dinkey little HUD demo program.
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