WASHINGTON (11/10/14)--A proposed Fannie Mae program offering low down-payment mortgages could cost borrowers less but could be limited by a private mortgage insurance requirement, said Fannie Mae's president/CEO. In an interview with The New York Times, Timothy J. Mayopoulos said the proposed program could cost borrowers less than similar loans at other government programs.
Currently, Fannie borrowers have to put 20% down due to the enterprise's charter preventing it from backing loan amounts exceeding 80% of the house's value. If private mortgage insurance is used to make up the portion of the 20% not covered by the down payment, Fannie will, however, guarantee a loan.
Federal Housing Administration (FHA) loans were approximately 14% of all mortgages made this year, but those loans cost consumers more than the proposed Fannie Mae low down-payment loans in many cases, Mayopoulos said.
Both Fannie Mae and Freddie Mac previously had low down-payment programs, but Freddie canceled it in 2011, and Fannie followed suit last year after the FHA increase the fees it charged for its guarantee. According to The New York Times, the fear was that the market would direct lower quality, low down-payment loans mainly to Fannie.
Mayopoulos said he didn't think that would happen with this proposed program, given that Fannie "won't be the only provider in the marketplace, and we will be able to monitor what's going on."