Fannie Mae and Freddie Mac may be close to allowing home buyers to purchase a home with only a 3 percent down payment.
Additional details are expected to be released in the coming weeks, but experts believe that reducing the required 5 percent down payment to 3 percent would allow creditworthy but cash-strapped buyers to purchase homes; something that would help the housing market regain some traction. Both the agencies have accepted 3 percent down payments in years past.
“Through these revised guidelines, we believe that the enterprises will be able to responsibly serve a targeted segment of creditworthy borrowers with lower down payment mortgages by taking into account compensating factors,” said Mel Watt, director of the Federal Housing Finance Agency, Fannie and Freddie’s parent agency, during a speech at the Mortgage Bankers Association’s annual convention in Las Vegas. “It is yet another much-needed piece to the broader access-to-credit puzzle.”
Watt also announced other initiatives to help ease lender’s fears and make them more likely to offer credit to buyers.
“It’s a very big deal,” Dan Gjeldum, a senior vice president at mortgage lender Guaranteed Rate told the Chicago Tribune, “It will dramatically reduce the expense for a first-time homebuyer. The easier it is to do business with the agency, the easier it’s going to be for consumers to work with mortgage companies.”
Freddie Mac and Fannie Mae do not originate mortgages directly to buyers. Lenders sell mortgages that can meet certain criteria to the agencies, and then in turn they package them into securities and offer them for sale to investors. These investments are guaranteed, meaning that investors will not suffer losses if homeowners default on mortgages.
Watt also stated on Monday that the FHFA was taking steps to help clarify the circumstances in which the two agencies could force a lender to repurchase a bad loan. “I hope our actions provide sufficient certainty to enable your companies to reassess existing credit overlays and more aggressively make responsible loans available to creditworthy borrowers,” Watt said in a prepared statement.
The announcement that Fannie and Freddie will lower down payment requirements is the latest move to help spur a continuing housing market recovery. Just last month, Fannie Mae reduced the waiting period between a bankruptcy, foreclosure or short sale for prospective buyers who are looking to apply for a new mortgage.
“Mortgages are still tough to get,” Pradeep Shukla, president of the Mainstreet Organization of Realtors told the Chicago Tribune. “Lenders are still extra cautious. On the whole, what is most important is consumer confidence and that is still lacking.”
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