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GSEs launch 3 percent down payment programs.

On Dec. 8, Fannie Mae and Freddie Mac made it official--they were once again in the business of buying low-down-payment loans from creditworthy borrowers. Federal Housing Finance Agency (FHFA) Director Mel Watt announced the pending return of these loans in October but it took the agencies until December to deliver all the fine print about who would be eligible for them. [paragraph] Director Watt emphasized in a brief statement that strict underwriting rules and other requirements will help control the inherent risks that come from having a very small equity cushion to fall back on if loans start to go sour.

He said, "To mitigate risk, Fannie Mae and Freddie Mac will use their automated underwriting systems, which include compensating factors to evaluate a borrower's creditworthiness. In addition, the new offerings will also include home-ownership counseling, which improves borrower performance."

Watt pointedly added, "FHFA will monitor the ongoing performance of these loans."

With just a 3 percent down payment requirement, the new agency loan programs will offer even lower down payments than what is required by the Federal Housing Administration (FHA). The FHA offers a 3.5 percent down payment minimum.

Fannie's program is being offered to qualified first-time buyers and will require private mortgage insurance or other risk sharing and income documentation, the company said.

A Fannie Mae press release announcing the program said, "With today's announcement, homebuyers can purchase a home under Fannie Mae's standard offering or its My Community Mortgage[R] product with a 3 percent down payment if at least one co-borrower is a first-time buyer."

In announcing the program's availability, Andrew Bon Salle, Fannie Mae executive vice president for single family underwriting, pricing and capital markets, said, "This option alone will not solve all the challenges around access to credit. Our new 97 percent LTV [loan-to-value ratio] offering is simply one way we are working to remove barriers for creditworthy borrowers to get a mortgage. We are confident that these loans can be good business for lenders, safe and sound for Fannie Mae, and an affordable, responsible option for qualified borrowers."

Freddie also announced on Dec. 8 the availability of what it is calling its Home Possible Advantage[TM] loan program with a 3 percent down payment to qualified low- and moderate-income borrowers. A press release said the mortgages can be used to buy a single-unit property or to do a "no cash out" refinance of an existing mortgage.

In order to qualify, first-time buyers using the 97 percent LTV mortgage program must participate in an "acceptable borrower education pro gram," according to Freddie Mac. Such programs include Freddie Mac's CreditSmart[R]. The maximum 97 percent loan to value mortgage program is available as 15-year, 20-year and 30-year fixed-rate mortgages.

Dave Lowman, Freddie Mac executive vice president, single-family business, said, "Home Possible Advantage gives qualified borrowers with limited down payment savings a responsible path to homeownership and lenders a new tool for reaching eligible working families ready to own a home of their own."

Private mortgage insurers (Mis) welcomed the move to lower down payments by the two agencies. With a 3 percent down payment program now being offered by Fannie and Freddie, more market share can be taken back by the private sector from government-insured mortgage programs--primarily FHA. That means more business for the private MI companies.

In a prepared statement, U.S. Mortgage Insurers (USMI), a trade group for the private mortgage insurance industry, said, "USMI members continue to believe that the return of 97 percent LTV mortgages with MI purchased by the [government-sponsored enterprises (GSEs)] for all creditworthy borrowers would further expand access to credit while providing substantial first-loss protection for taxpayers provided by private capital."

The group added, "Private mortgage insurance (MI) has been readily available to creditworthy borrowers in this market segment for many years. Restoring access to these loans is an important option that will help creditworthy first-time homebuyers achieve affordable homeownership in a sensible and responsible manner."
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Title Annotation:NEWS ROOM; government sponsored enterprises
Comment:GSEs launch 3 percent down payment programs.(NEWS ROOM)(government sponsored enterprises)
Publication:Mortgage Banking
Geographic Code:1USA
Date:Jan 1, 2015
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