The government-sponsored enterprises will begin accepting loans with smaller down payments for homebuyers, according to an announcement.
Fannie Mae and Freddie Mac will back loans with as little as 3 percent down payments, down from 5 percent, to help bolster the housing market, said Federal Housing Finance Agency Director Mel Watt at the annual Mortgage Bankers Association convention in Las Vegas October 20.
Here’s how two of the industry’s leading analysts reacted to the news:
“Director Watt’s announced efforts to open the currently very tight credit box for mortgage loans will be a plus for the homebuilding industry. A significant constraint on single-family housing demand, particularly for first-time and lower- and middle-income households, has been extraordinarily tough lending standards. Lenders have been especially cautious given uncertainty regarding the risks they face in making loans purchased by Fannie Mae and Freddie Mac. By providing clarity on what risk lenders’ face, they will lend more freely. However, this will not be a game changer for homebuilders, as there are a range of other constraints that must be addressed before the industry kicks into a higher gear.” Mark Zandi, Moody’s Analytics
“Our outlook that underwriting will ease gradually reflects: 1) there are still significant regulatory changes to come, including QRM definition/implementation and changes to RESPA/TILA requirements (expected in 8/15), and 2) increased compliance requirements, from a cost and time perspective, are negatively impacting lenders’ appetite. Further, the details of any deal between the Agencies, their regulator and lenders are uncertain. For example, reports suggest loosening could include a 3 percent down payment option—although this seems significant relative to a 20 percent standard—we’d note the Agencies are already financing 5 percent down payment loans with private mortgage insurance and the FHA offers loans for borrowers that can put 3.5 percent down.” David I. Goldberg, UBS
