Earlier this week, Freddie Mac and Fannie Mae revealed more details regarding mortgage programs that will allow mortgages with a 3% down payment. The programs are aimed towards first time home buyers and low-income buyers who have been hindered from costly down payments.
According to the website NuWire Investors, the historically low share of first time home buyers has thwarted the recovering real estate market. A survey conducted by the National Association of Realtors (NAR) also revealed a 5 percent drop in first time home buyers for 2014, the lowest it has ever been in 27 years.
The Fannie Mae program caters to first time home buyers where at least the buyer or co-buyer must be a first-time owner. Fannie Mae states that the process for qualifying for their 97 percent loan-to-value (LTV) ratio includes the "usual eligibility requirements, including underwriting, income documentation and risk management standards." Private mortgage insurance is required as well.
Home Possible Advantage (SM)-the Freddie Mac program-is designed for low-income buyers who may not have the savings necessary for an expensive down payment. With the same LTV, the Home Possible Advantage program is not relegated to first time home buyers. Qualified low- and moderate-income borrowers can participate in the program. However, qualified first time home buyers are required to participate in an acceptable borrower education program.
Proponents of the programs have applauded Fannie Mae and Freddie Mac for leveling the playing ground for buyers which will in turn help foster the housing market.
But, the programs have also caused polarizing opinions. Opponents of the programs have argued that more flexible lending standards may bolster another financial crisis. Most notably, Toll Brothers has voiced its perspective in late October, when plans for the programs were announced. Robert Toll, the CEO of Toll Brothers, stated that the idea was "dumb" and cited his concerns regarding another crisis.
Still, news of the programs have garnered widespread support from other national builders, first time home buyers, and more. As both programs take into effect later this year and early next year, time will tell if the housing market steadily continues to improve.