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No, it’s not a new undersea adventure to raise the Titanic or find some long lost sunken treasures, it’s the movement by the Agencies and FHA to provide low down payment financing to first-time and low-to-moderate income home buyers.
About a year ago, both Fannie and Freddie announced the reinstatement of their 3% down payment loan programs. This was done because it is believed that there are plenty of potential home buyers out there who, although they can afford the monthly payments, they don’t have the money to cover any required down payment. The idea is to reduce the down payment required to help more people buy homes. Good idea.
At about the same time, the FHA decided to do their part to help increase homeownership. They reduced their required monthly mortgage insurance premium. This helped make it easier for the consumers to qualify for the home and afford the monthly payments.
With FHA’s already low down payment requirement at 3.5% and now the reduced annual insurance, the home and the loan became more affordable. Another good deal.
It seems as though FHA’s move took some of the luster off the Agencies’ programs. As a result, Fannie’s program produced only about 24,000 loans for the year. Freddie started a few months later than Fannie and has yet to report a final figure. On the other hand, FHA’s share of the business has consistently increased.
So what’s next? Fannie and Freddie are pushing to increase their lending in this arena. Freddie is doing a deal with Self-Help Federal Credit Union through Self Help’s partnership with BofA.
BofA will offer Freddie’s low down payment program to those with an income equal to or less than 100% of the median, with no mortgage insurance required. Once originated, the loans will be packaged and sold to Freddie with Self Help accepting the reps and warrants and servicing the loans.
This trumps (excuse the pun) the FHA program as the down payment required is less and there is no additional amount required either up front or monthly for mortgage insurance. Pretty good deal, eh? Low down payment AND low monthly payments. Who could ask for anything more?
Not me. I only ask that these and all low down payment loans be originated carefully with the borrowers properly vetted to ensure they can afford and maintain the home.
FHA, Fannie, and Freddie are under intense pressure and scrutiny to provide financing for the first time and low to moderate income home buyers. This needs to be done right. This is partly what got them and the industry in trouble last time.
There is nothing wrong with programs that help to spur homeownership offering more people their shot at the American Dream. After all, as the housing market goes (or grows), so goes the economy.
The more people buying and selling homes, the better it is for everyone. As long as they make their payments! Otherwise…I think I don’t need to finish this sentence.
So let’s not just hope, let’s all work together to originate good quality loans. Loans that will be a strong foundation for the future growth of the housing market, mortgage lending and our economy.
Let’s make sure it works this time.
