Fannie Mae and Freddie Mac to Accept 3% Down Payment Mortgages

21 10 2014

Fannie Mae and Freddie Mac are close to allowing consumers to buy a home with as little as a 3 percent down payment and still have the mortgages backed by the two agencies.

More details are expected to be announced in coming weeks, but the move from a 5 percent down payment could increase the ability of creditworthy but cash–strapped consumers to become homeowners and help a faltering housing market regain its traction. Both agencies at one point had accepted 3 percent down payments. Fannie Mae stopped accepting loans with 3 percent down payments last year, while Freddie Mac stopped accepting them in June 2011.

“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 overseer, during a speech Monday 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 policy initiatives to make lenders more comfortable with the federal government’s mortgage purchase guidelines in the hope it will loosen their purse strings.

“It’s a very big deal,” said Dan Gjeldum, a senior vice president at mortgage lender Guaranteed Rate. “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.”

Fannie Mae and Freddie Mac do not originate mortgages directly to homebuyers. Instead, lenders sell mortgages that meet certain criteria to the two agencies, which in turn package them into securities and sell them to investors. The investments are guaranteed, which means that investors recoup losses if the homeowner defaults. Fannie and Freddie can force lenders to repurchase bad loans.

The upshot of those assurances is a more cautious lending environment that is leaving some would-be buyers on the sidelines.

Watt said Monday the FHFA was taking steps to clarify the circumstances under which Fannie and Freddie could force a lender to repurchase a loan, in an effort to reduce lender confusion. “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 prepared remarks distributed by the FHFA.

In its most recent report, the FHFA said the average FICO credit score of borrowers was 744 for Fannie Mae and 742 for Freddie Mac, lower than at the end of 2013. FICO scores range from 300 to 850.

Borrowers who put down less than 20 percent on a home purchase typically pay mortgage insurance that continues until their equity in the home reaches 20 percent. Reducing the down payment requirement to 3 percent from 5 percent will require a longer period of mortgage insurance and benefit mortgage insurance providers.

Homebuyers with lesser credit scores and smaller down payments traditionally flocked to mortgages backed by the Federal Housing Administration that required down payments of only 3.5 percent. However, to aid the agency’s finances, the upfront fees and monthly insurance premiums associated with those loans have increased, reducing demand for them and keeping more first-time buyers on the sidelines.

Watt’s announcement is the latest step in the federal government’s effort to continue a housing market recovery that has stagnated lately, confounding industry watchers. Last month, Fannie Mae shortened the waiting period that homeowners who have gone through a bankruptcy, a foreclosure or a short sale must wait before they can again purchase a home.

Addressing the convention earlier Monday, David Stevens, president and CEO of the mortgage bankers, noted that 2014 purchase loan originations are expected to be more than 10 percent below last year’s level.

Even billionaire Warren Buffett has recently weighed in on the market’s malaise, saying he didn’t understand why low interest rates and economic improvement weren’t fueling a housing market recovery. “You would think that people would be lining up now to get mortgages to buy a home,” he said at a conference this month.

At one point, there was speculation that the average interest rate on a 30-year, fixed-rate mortgage would hit 5 percent by year’s end, but analysts now think that threshold won’t be hit until halfway through 2015. Last week, the average fixed interest rate on a 30-year mortgage was 3.97 percent, the lowest it’s been since June 2013.

However, most consumers rarely see rates that low because Fannie Mae and Freddie Mac, as well as extra-cautious lenders, tack on credit overlays tied to consumers’ down payment amounts and credit scores.

“Mortgages are still tough to get,” said Pradeep Shukla, president of the Mainstreet Organization of Realtors. “Lenders are still extra cautious. On the whole, what is most important is consumer confidence and that is still lacking.”

Source: Chicago Tribune





Delinquent Homeowners Two Years Behind on Mortgage Payment Can Now Qualify For Loan Modification

21 10 2014

Florida borrowers two or more years late on their mortgage payments could get another chance to save their homes following a change in loan modification rules by the Federal Housing Finance Agency.

Federal mortgage backers Fannie Mae and Freddie Mac announced the elimination of an eligibility cap that forbid loan modifications to people with delinquencies of 720 days or more.

The change was made to the “streamlined modification” program, which was created in 2013 and billed as a more automatic route to lower mortgage payments because no application or exchange of paperwork is required.

It’s estimated that nearly half of borrowers nationwide who are ineligible because of the 720-day cap, would otherwise be able to get a loan modification through the program, according to the Federal Housing Finance Agency.

Lenders must comply with the cap elimination by April 1, 2015, but are being encouraged to make the change immediately. Borrowers who were previously denied a streamlined modification because they were more than two years late on payments must be reevaluated, according to letters sent to lenders and mortgage servicers Oct. 1.

“We’ve had multiple clients receive approvals under this program,” said Paul Baltrun, director of corporate development for the Law Office of Paul A. Krasker in West Palm Beach. “It’s very little paperwork, mostly just phone conversations with the lender, and the turn time is quicker.”

The streamlined modification program was developed because of consistent complaints from borrowers that banks repeatedly lose loan modification paperwork in a bureaucratic process that can take years to complete. Banks have also said obtaining the correct employment and payment documents from borrowers can be a hurdle in completing a modification.

Under the program, lenders send contracts to borrowers with new payment amounts. The modification could include a fixed interest rate, an extension of the loan to 40 years, and possibly deferring a portion of the debt owed to the end of the loan so it’s not included in current payment calculations.

Also, borrowers are encouraged to apply for other loan modification plans, such as the Home Affordable Modification Program, which could offer a better deal.

If the borrower agrees and makes three on-time payments, the modification becomes permanent.

Baltrun said it’s hard to gauge how many people the change will affect. Although the worst of the foreclosure crisis is over, he said a significant number of homeowners are still looking for modifications because they have lost jobs, or have used up their savings trying to stay in their home.

“I think it will help a small number of people in specific circumstances,” said Baltrun, who believes removing the cap is a good change. “Why would someone who is 721 days late be declined when someone who is 719 days late is approved?

Other eligibility requirements for the streamlined modification include homeowners must be at least 90 days late on their mortgage and can’t have more than 20 percent equity in their home.

About 3 percent of Florida homeowners with mortgages were 90 days late or more on payments during the second quarter of this year, according to the Mortgage Bankers Association. Nearly 10 percent were either 90 days delinquent, or in foreclosure.

While that’s still the second highest foreclosure and serious delinquency rate in the nation behind New Jersey, it’s an improvement from where Florida was at the end of 2011 when 18 percent of mortgages were in the same position.

Streamlining modifications is increasingly important in Florida where foreclosure courts are moving cases more quickly through the system. That means less time for negotiating with the bank before a final foreclosure judgment is issued.

“You can’t even keep people in their homes very long anymore,” said Deerfield Beach-based attorney Bonnie Lynn Canty, who defends foreclosures. “Used to be four years out before you were looking at a (foreclosure) sale date. Now, it’s at the most two years.”

Source: Palm Beach Post, Bloomberg BusinessWeek








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