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





Fannie Mae, Freddie Mac to Allow Homeowner Walkaways in Some Short Sale Cases

5 02 2013

Fannie Mae and Freddie Mac will let some borrowers who kept up payments as their homes lost value erase their debts by giving up the properties, helping Americans escape underwater loans while adding to losses at the mortgage giants bailed out with $190 billion of taxpayer money.

Non-delinquent borrowers with illness, job changes or other reasons they need to move will become eligible in March to apply for a so-called deed-in-lieu transaction that erases the shortfall between a property’s value and the size of its mortgage. It follows a change in November that lets on-time borrowers sell properties for less than they owe, known as short sales, wiping out the remaining mortgage debt. Normally, the lenders could pursue people to recoup their losses.

Eligible borrowers will have the forgiven debt – the amount remaining between the property’s value and size of their mortgage – erased.

“The goal is to make sure people who have suffered a hardship have the appropriate options to prevent foreclosure,” says Andrew Wilson, spokesman for Fannie Mae.

Borrowers may still be required to pay some of the forgiven debt, however, if the borrower has the means to do so.

“Homeowners applying for deed-in-lieu transactions may be asked to make cash contributions of up to 20 percent of their financial reserves, excluding retirement accounts,” Bloomberg reports about the guidelines. “Or, they may be asked to sign a promissory note for future no-interest repayments. The amount and terms can be negotiated.”

Fannie and Freddie’s new eligibility for deed-in-lieu of transactions has been met with some criticism, particularly at a time with the government-sponsored enterprises are still underwater themselves from steep losses the last few years. The GSE’s have, to date, required $190 billion of taxpayer money since 2008.

“It’s an extraordinarily generous approach for companies still in debt to American taxpayers,” Phillip Swagel, a professor at the University of Maryland’s School of Public Policy, told Bloomberg. “We’re giving people an incentive to walk away, right when the housing market is starting to right itself.”

But some argue that past programs tended to penalize borrowers on the brink of foreclosure who kept making their payments, says Julia Gordon, director of housing finance and policy at the Center for American Progress. Mortgage servicers in some cases were even advising borrowers to stop making their mortgage payment so that they could qualify for more assistance.

“Fannie and Freddie are finally recognizing that some people are stuck in their homes,” Gordon told Bloomberg. “There are a lot of families who need to move who can’t do it if they’re going to have debt hanging over their heads. There’s no winner when someone is forced to default on their mortgage – not the investor, not the homeowner and certainly not the neighborhood.”

Source: Bloomberg





70% Of Renters Think Owning Makes More Sense

14 04 2012

Fannie Mae’s latest quarterly National Housing Survey focuses on the homeownership aspirations of Americans. Despite the recent housing crisis, most Americans continue to believe that homeownership is better than renting. Here are some of the Survey findings:

  • Across all education levels, Americans say owning makes more sense than renting.
  • Nearly two-thirds of current renters say that they will buy a house at some point in the future.
  • Non-financial factors, such as safety and quality of local schools, continue to be the top reasons for buying a home across all income groups.
  • African-Americans and Hispanics are more likely to cite various benefits to homeownership, such as buying a home as a way to build wealth, as a symbol of success and civic benefits.
  • Renters are more likely than mortgage borrowers to think it would be difficult for them to get a home, and say financial reasons are the major reason they have not bought a home.
  • African-Americans and Hispanics are more likely to indicate that getting a mortgage is difficult, regardless of income level. They are also more likely to cite bad economic times and the complexity of the mortgage process as major reasons not to buy a home.
  • Groups with lower levels of education are more likely to say it would be difficult for them to get a mortgage than groups with higher levels of education.
  • Hispanics are less confident than other groups about receiving information they need to choose the right mortgage.
  • Groups with higher levels of education and higher incomes are more likely to think buying a home is a safe investment.

Source: Fannie Mae








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