Fannie Mae is the largest mortgage government entity in the United States. In an attempt to bring more people into the housing market, it is in the process of taking action to expand the availability of mortgages with low down payment requirements. The new program by Fannie Mae will require mortgage insurance from private organizations on top of the down payment made by the purchaser.
Fannie Mae is a government backed entity which guarantees mortgages. It is regulated by the Federal Housing Finance Agency. Since the onset of the financial crisis in the year 2008, more than 3/4 of all mortgages in the United States have had some type of government backed guarantee behind it. Fannie Mae’s current requirements only allow borrowers to borrow up to 80% of the purchase price of the home. Under the new proposed program, Fannie Mae will back programs with down payments as low as 3% of the value of the home. However, all of these loans will require private mortgage insurance with regard to the portion of the 20% of the cost of the home that is not made as a down payment. The purpose of this new program is to bring more borrowers who have not accumulated significant amounts of savings back into the housing market.
Raising The Risk of Future Foreclosure
Studies have shown prospective home purchasers who make down payments of less than 20% have significantly higher default rates. When these homeowners default, their homes go into foreclosure. Low down payment loans were part of the problem which caused the huge mortgage crisis in 2008, which is still playing out today.
Conclusion
Helping prospective homeowners come into the housing market with smaller down payments gives more and more Americans access to the American dream, the ownership of a single family home. However, this program must be careful not to create a new mortgage bubble which may cause a deluge of foreclosures in the future.
Elliot Schlissel is a foreclosure lawyer. He fights foreclosure lawsuits and helps keep homeowners in their homes.
