WASHINGTON (12/10/14)--Fannie Mae and Freddie Mac have announced new, low down payment options for potential homebuyers, allowing more borrowers to access credit. Federal Housing Finance Agency Director Mel Watt called the announcements a step toward increasing credit access to all.
"These underwriting guidelines provide a responsible approach to improving access to credit while ensuring safe and sound lending practices," 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 homeownership counseling, which improves borrower performance."
Fannie Mae's standard mortgage and its My Community Mortgage product can be purchased with a 3% down payment if at least one co-borrower is a first-time buyer. My Community Mortgage is a conventional community lending mortgage that offers underwriting flexibilities to qualified borrowers who meet specific income criteria.
According to Fannie, eligible homeowners who wish to refinance their Fannie Mae-owned mortgage but do not qualify under the Home Affordable Refinance Program can refinance their loan up to the 97% loan-to-value level under a limited cash-out option.
"Fannie Mae has implemented prudent risk management practices to ensure that loans the company acquires are appropriately underwritten, including mortgages with lower down payments," reads a statement by Fannie Mae. "These include essentially eliminating risk-layering on purchase money loans, requiring income documentation to avoid 'low-doc' or 'no-doc' lending, and requiring income verification."
These loans will require private mortgage insurance or other risk sharing, as is required on purchase loans acquired by the company with greater than 80% loan to value.
Freddie Mac has launched Home Possible Advantage, a product that is "an affordable conforming, conventional mortgage with a 3% down payment requirement designed to make responsible homeownership accessible to more first-time buyers and other qualified borrowers with limited down payment savings," according to a statement.
The product is available in 15-, 20- and 30-year fixed-rate mortgages.
Watt said the FHFA will monitor the ongoing performance of these loans.