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September 20, 2014

Fannie to Change Mortgage Purchasing Practices?

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Fannie to Change Mortgage Purchasing Practices?

Mortgage giant Fannie Mae might limit its purchases of mortgages that require a minimum down payment of 3 percent, according to The Wall Street Journal. 

Even after lending standards tightened in recent years, Fannie Mae has never stopped accepting purchase of 3 percent down payments. The loans have become less common in recent years, but are reportedly starting to increase, prompting Fannie Mae to revisit its position. Many lenders stopped offering such loans because they weren’t able to obtain mortgage insurance for those loans.

Fannie Mae—and Freddie Mac—require that any loans that have less than a 20 percent down payment have mortgage insurance or a “credit enhancement.” Freddie Mac stopped backing mortgages with 3 percent down payments several years ago. It now requires a minimum of 5 percent down. 

Some analysts expect the changes being considered by Fannie will not be disruptive to the mortgage market. The Federal Housing Administration will still continue to insure loans with 3.5 percent down. 

“An awful lot of people who have only got 3 percent down would be advised to save another 2 percent. That’s an old hard-headed answer, but it’s true,” Lou Barnes, a mortgage banker in Boulder, Colo., told The Wall Street Journal. Higher insurance premiums that borrowers have to pay on a mortgage with a 3 percent down payment versus one with a 5 percent down payment may warrant “waiting six months or a year to save up the extra down payment.” 

Source: “Fannie Could Curb Low-Down-Payment Loan Purchases,” The Wall Street Journal (Aug. 16, 2013)

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