Fred­die Mac Eases 3% Down Pay­ment Lim­its for First-Time Home­buy­ers

National Mortgage News - - Secondary - By Brad Finkel­stein

In its lat­est ef­fort to reach first-time home­buy­ers, Fred­die Mac is launch­ing a new 3% down pay­ment pro­gram that casts aside a num­ber of re­stric­tions in its ex­ist­ing low down pay­ment of­fer­ings.

The pro­gram, called HomeOne, doesn’t have in­come caps or ge­o­graphic lim­its like pre­vi­ous 3% down pro­grams. But one of the bor­row­ers on the loan must be a first-time home­buyer and the prop­erty type is lim­ited to a one-unit pri­mary res­i­dence.

Its cur­rent low down pay­ment pro­gram, Home Pos­si­ble, is capped at a 95% loan-to-value ra­tio, ex­cept for the Home Pos­si­ble Ad­van­tage loan that goes to a 97% LTV. How­ever those loans are sub­ject to in­come lim­its.

Ris­ing home prices con­tinue due to in­ven­tory short­ages is mak­ing it tougher to save up for a down pay­ment, said Danny Gard­ner, Fred­die Mac’s se­nior vice pres­i­dent of sin­gle-fam­ily af­ford­able lend­ing and ac­cess to credit.

The Home Pos­si­ble pro­gram has been well-re­ceived in the mar­ket since it launched about three years ago, Gard­ner said. But lenders found that Home Pos­si­ble’s guide­lines “were so spe­cific. [Bor­row­ers] have to meet in­come thresh­olds; you have to meet thresh­olds based on cer­tain ge­ogra­phies. And things change a lot dur­ing a loan trans­ac­tion,” he said, like a lender dis­cov­er­ing ad­di­tional in­come sources that would make a bor­rower in­el­i­gi­ble for Home Pos­si­ble. Another ex­am­ple: a spouse that orig­i­nally wasn’t go­ing to be on the mort­gage chang­ing his or her mind.

“That caused a level of com­plex­ity for lenders and con­sumers to un­der­stand those nu­ances. By hav­ing a more broad-based prod­uct where the met­ric is whether or not you are first-time home­buyer makes those other if/then state­ments ob­so­lete and lenders can be more con­fi­dent pro­mot­ing an op­tion for bor­row­ers,” Gard­ner said.

Sim­i­lar to Home Pos­si­ble, lenders must use Loan Prod­uct Ad­vi­sor to un­der­write HomeOne mort­gages. The loan must be fixed-rate and can’t be “su­per con­form­ing loan.” It also can’t be used for a cash-out re­fi­nance, sec­ond home or in­vest­ment prop­erty.

How­ever, Fred­die Mac of­fi­cials did not spec­ify any other un­der­writ­ing re­quire­ments to mit- igate the qual­i­fi­ca­tion dif­fer­ences be­tween HomeOne and Home Pos­si­ble.

There are very lim­ited re­fi­nance sit­u­a­tions per­mit­ted to use HomeOne ( Home Pos­si­ble can be used for re­fi­nance loans, but there has been very lim­ited vol­ume); cur­rent Fred­die Mac bor­row­ers that were first- time buy­ers can re­fi­nance into a 97% LTV loan; or if the bor­rower has a com­mu­nity sec­ond mort­gage and the lender agrees to sub­or­di­nate the lien, Gard­ner said. Bor­row­ers are re­quired to ob­tain pri­vate mort­gage in­surance for HomeOne.

In Jan­uary, the first- time home­buyer share of pur­chase loans at Fred­die Mac and Fan­nie Mae was 48.1%, the high­est level since the turn of the cen­tury, ac­cord­ing to Ur­ban In­sti­tute es­ti­mates. Over the same pe­riod, the Fed­eral Hous­ing Ad­min­is­tra­tion share of first- time buy­ers re­mained rel­a­tively flat in the 80% range; in Jan­uary it was 82%. The com­bined GSE and FHA share in Jan­uary was 58.9%.

A sep­a­rate study by pri­vate mort­gage in­surer Gen­worth found 157,000 loans to first-time home- buy­ers in the fourth quar­ter of 2017 used pri­vate mort­gage in­surance, com­pared with 167,000 that were in­sured by the FHA.

“When I joined Fred­die Mac three years, that was one of the is­sues ev­ery­body was con­cerned about, was whether or not mil­len­ni­als would be given the op­por­tu­nity to pur­chase homes, whether or not they wanted to pur­chase homes and why were we not see­ing the his­tor­i­cal rates of home­own­er­ship for first-time home­buyer,” said Gard­ner.

How­ever, the Ur­ban In­sti­tute also notes that re­peat buy­ers have char­ac­ter­is­tics that get them lower rates, such as higher credit scores and lower LTVs. For first-time buy­ers, bor­row­ers ap­proved for con­form­ing loans get lower rates than FHA bor­row­ers.

First-time home­buy­ers that get con­form­ing fi­nanc­ing have an av­er­age loan amount of $231,000, a 737.7 av­er­age credit score, an 87.2% av­er­age LTV and an av­er­age debt-to-in­come ra­tio of 36%. The first-time buyer that took an FHA loan has an av­er­age loan amount of $203,677, av­er­age credit score of 673.4, av­er­age LTV of 95.5% and av­er­age DTI of 42.9%. The av­er­age in­ter­est rate was 4.32%.

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