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Tag: FHFA

  • Fannie/Freddie bringing back 3% down mortgage

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    I guess FHFA Director Mel Watt was serious about allowing lower down payments. Fannie Mae announced today it immediately will start buying mortgage loans with down payments as low as 3%. I haven’t heard all the details yet, but let me tell you what I have seen.

    First, I don’t know of any lenders yet that are offering the loan program. That may take a couple weeks. And I wouldn’t be surprised to see significant credit overlays to make qualifying a little harder that what I’m going to summarize below. Lenders still are skittish of buy backs and figure homebuyers with little skin in the game are more likely to default.

    But let’s assume lenders step up. Fannie says it will accept credit scores as low as 620, but the program is only available to first-time homebuyers, being those who haven’t owned a primary residence in the past 3 years. I understand the program has income limits, but I don’t have details at this time. And, of course, the program requires mortgage insurance, but that shouldn’t be a problem as several PMI companies say they’re willing to insure the loans.

    Freddie also has announced it will resurrect a 3% down program, but it won’t start until 3/23. Freddie’s program will be more restrictive. It will limit the program to those who never have owned a home and will require homebuyer counseling. It also may require higher credit scores.

    Follow my videos for further details on the programs and for information about lender adoption.

  • Return of 3% down payment mortgage

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    If FHFA Director Mel Watt has his way, we’ll have 3% down conventional loans again soon, but he’ll have to overcome criticism that lower down payments represent a return to the policies that led to the housing crash.

    Watt said the loan program he envisions would have tougher requirements, such as stronger credit histories or housing counseling, and Fannie Mae’s CEO claimed the new Dodd-Frank regulations will ensure borrowers can afford to repay the loans.

    Some independent analysis supports the safety of the proposed program. An Urban Institute study found that credit scores were a much better predictor of default risk than down payment size. It concluded that allowing loans with down payments less than the current 5% limit should have a negligible effect on default risk.

    Critics point out that it’s not the ability to repay that concerns them, but the ability to weather another decline in home values. It’s undeniable that having “no skin in the game” was a factor in some homeowners strategically defaulting on their underwater mortgages.

    Still others worry that this is “just the camel’s nose under the tent.” They say it’s naive to think this won’t lead to a further erosion of underwriting standards over time.

    However this plays out, I think Watt is being politically astute in sharing his plan with various interest groups and Congress. FHFA can change the minimum down payment requirement without Congressional approval, but I suspect Watt would like the cover that a broad consensus would give him.

  • Will we see lower down payment conventional loans?

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.