Mortgage Professionals Should be Optimistic About the Future

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36 | Th e M Rep o RT o r i g i nat i o n s e r v i c i n g a na ly t i c s s e c o n da r y M a r k e t ORIGINATION The LaTesT gses offer 3% down Payment to First-time Buyers officials expect new higher LTV loan options to open up credit lines for low- and moderate-income borrowers. F ollowing months of talk and speculation, both Fannie Mae and Freddie Mac are now allowing qualifying first-time borrowers to purchase homes with just a 3-percent down payment. By slashing the down payment requirement, the GSEs hope to increase homeownership and particularly household formation by offering loans to those who can afford mortgages but lack the resources to cover a 20-percent down payment, plus closing costs. Those who have pushed for the lower down payment, such as Federal Housing Finance Agency (FHFA) Director Mel Watt, have endured criticism from lenders due to the perceived risk that comes with mortgage loans that have such a high loan-to-value (LTV) ratio. "These underwriting guidelines provide a responsible approach to improving access to credit while ensuring safe and sound lending practices," Watt said in a prepared statement. "To mitigate risk, Fannie Mae and Freddie Mac will use their automated under- writing systems, which include compensating factors to evaluate a borrower's creditworthiness. In addition, the new offerings will also include homeownership counseling, which improves bor- rower performance. FHFA will monitor the ongoing performance of these loans." Freddie Mac announced the launch of Home Possible Advantage a conventional mortgage with a maximum LTV ratio of 97 percent for qualified low- and moderate-income bor- rowers. Home Possible Advantage mortgages can be used either to buy a single unit property or for a "no cash out" refinance of an existing mortgage, and they are available as 15-, 20-, or 30-year fixed-rate loans. In order to qualify for a Home Possible Advantage mortgage, first-time homebuyers must participate in an approved bor- rower education program, such as CreditSmart offered by Freddie Mac. "Home Possible Advantage gives qualified borrowers with limited down payment savings a responsible path to homeown- ership and lenders a new tool for reaching eligible working families ready to own a home of their own," said Dave Lowman, EVP of single-family business at Freddie Mac. "Home Possible Advantage is Freddie Mac's new- est effort to foster a strong and stable mortgage market." Likewise, Fannie Mae is now offering mortgage loans with a maximum 97 percent LTV ratio to qualifying first-time homebuyers. Such a mortgage can be obtained with a 3-percent down payment under Fannie Mae's standard offering or its My Community Mortgage product if one of the co-borrowers is a first-time homebuyer. In addition, homeowners with an existing Fannie Mae mort- gage who are not eligible for the Home Affordable Refinance Program (HARP) can refinance their loans up to the level of 97 percent LTV if they meet eligibil- ity requirements. "Our goal is to help additional qualified borrowers gain access to mortgages," said Andrew Bon Salle, Fannie Mae's EVP of single-family underwriting, pric- ing, and capital markets. "This option alone will not solve all the challenges around access to credit. Our new 97 percent LTV offering is simply one way we are working to remove barriers for creditworthy borrowers to get a mortgage. We are confident that these loans can be good business for lenders, safe and sound for Fannie Mae, and an affordable, responsible option for qualified borrowers." In order to mitigate risk and ensure the loans Fannie Mae acquires are properly underwrit- ten, the company has imple- mented practices that include requiring income documentation and verification and eliminating risk-layering on purchase money loans. Fannie Mae explained in an announcement about the new loan guidelines that private capital will be in the first loss position. Mortgage insurers and other risk-sharing partners must conclude that the lower down payment loans are prudent in order for them to be originated and sold in the secondary mar- ket to Fannie Mae. Also, whereas some lenders have tightened mortgage availability due to uncertainty around the circum- stances that might trigger a loan repurchase request, Fannie Mae is working to provide lenders with greater clarity regarding these requests. To help better evaluate loan risk, Fannie Mae is offering new tools to lenders, such as Collateral Underwriter, which will be avail- able in early 2015. It is the same appraisal review tool that Fannie Mae uses and will be available to the company's customers at no additional charge.

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