Fannie Mae and Freddie Mac are releasing news on their plans to back mortgages with down payments as low as 3%. They say the move will make home ownership more accessible and their plans contain safeguards to protect against abuses that led to the subprime housing market crash.
The loans would be allowed only for fixed-rate mortgages on single-family homes that would be the borrower's primary residence and would require full documentation of the ability to repay the mortgage.
“Our goal is to help additional qualified borrowers gain access to mortgages,” said Andrew Bon Salle, executive vice president for single family underwriting, pricing and capital markets at Fannie Mae.
The new program is designed to help credit-worthy borrowers, particularly those with low or moderate incomes, who can demonstrate the ability to repay a mortgage but lack the money needed for at least a 5% down payment.
The two firms will offer somewhat different programs.
Freddie Mac will limit its program, called Home Possible Advantage, to mortgages for first-time homebuyers. Borrowers must participate in a homebuyer education and counseling program before receiving the loan and will have to pay for private mortgage insurance. Homeowners with Freddie Mac mortgages could also refinance under the program, but would not be able to take any cash out as part of the process.
Fannie Mae's program will be available to anyone who has not owned a primary residence for three years. Private mortgage insurance will be required but counseling and education will not.
Borrowers with Fannie Mae mortgages will be able to refinance and can take out up to $2,000 to cover closing costs but will not be allowed to remove equity from their home.
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