In an effort to open up lending to more low-income and first time home buyers—and, we suspect, to spread seasonal goodwill-- Fannie Mae and Freddie Mac announced last Monday that they will start backing mortgages with down payments of as little as 3% of the home's price. Both programs are for fixed-rate loans given to first time homebuyers and those seeking to refinance. Fannie began backing the loans on December 13, while Freddie will start offering them March 23, 2015.
Who can apply? Fannie Mae will allow new purchasers and borrowers who haven’t owned a primary residence within the last three years to qualify. Freddie Mac’s program will be limited to people who have never owned a home or those with moderate incomes or who are buying in under-served areas. Borrowers who currently have loans backed by the two companies will be allowed to refinance with as little as 3 percent down. Fannie Mae borrowers will be allowed to take cash out for closing costs; Freddie Mac borrowers will not. Both programs allow only fixed-rate loans on single-family homes used as a primary residence and require private mortgage insurance.
To reassure critics who fear a repetition of the infamous” bubble” and resulting real estate market collapse, Federal Housing Finance Agency Director Mel Watt stated that the underwriting guidelines of both agencies provide a responsible approach to improving access to credit while ensuring safe and sound lending practices.
Borrowers must meet strict eligibility requirements, including automated underwriting, income documentation, and risk management standards to support their creditworthiness. In addition, the new offerings will also include mandatory homeownership counseling and instruction, which improves borrower performance. “The FHFA will monitor the ongoing performance of these loans,” promised Director Watt.
Such good tidings offer hope for expanded home ownership in 2015.