The Wall Street Journal published that a deal between the FHA, Fannie Mae and Freddie Mac is much closer to becoming real than had been anticipated. Nobody knows the exact timing of the implementation of the deal but there are two 
significant parts that will benefit the consumer.
The first element has to do with making it crystal clear to lenders what is expected of them when delivering loans to Fannie Mae or Freddie Mac or getting them insured by HUD. This clarity will mean that lenders won’t be afraid of loan risk nearly to the extent that they now are. The consequence for the consumer will be that the underwriting experience will become easier for them.
That’s important, but admittedly a little boring.
The exciting part is that they seem ready to bring back 3% down payment loans backed by Fannie Mae and Freddie Mac. These were excellent products before they got ran out of town in 2013. It would appear that they won’t have left us for even two years before making their return.
Having this product return is good for two reasons:
- Some highly qualified buyers only have a 3% down payment to bring to a transaction. They shouldn’t be excluded from homeownership or forced into an inferior loan (like a FHA loan) just because of something that happened prior to 2009. Especially now that the laws have changed regarding making sure that everyone can afford the loan their taking.
- 1% down payment purchases will again be able to be done without using monthly mortgage insurance or suffering an increase in interest rate. This can be done by incorporating Single Premium Financed PMI. A 5.1% down payment is made and a one-time buyout of the PMI is charged and then financed into the loan up to 97% of the appraised value or purchase price (whichever is less). This technique will have either the impact of dramatically lowering a monthly payment or meaningfully increasing a homebuyer’s purchase power.
This deal, that should shortly be announced, has been put together by elements of the government (HUD and the FHFA). The additional noteworthy element of this news it that it marks the first time that action has been taken at that level to meaningfully boost homeownership and free up the flow of mortgage lending. It will likely not be the last. It’s nice to be on the loosening side of the recession reaction curve! :)
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