Magazine article Mortgage Banking

GSEs Launch 3 Percent Down Payment Programs

Magazine article Mortgage Banking

GSEs Launch 3 Percent Down Payment Programs

Article excerpt

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. …

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