Fannie Mae cuts minimum for some down payments
NEW YORK - Fannie Mae, backing down under pressure from homeowner and real estate groups, will allow buyers in markets with falling home prices to purchase houses with 3 percent down payments, potentially increasing the company's risk.
The disclosure, combined with new legislation that may require the largest US mortgage-finance provider, and Freddie Mac to fund a government mortgage program, demonstrated the extent of lawmakers' sway over their policies.
"It basically shows you that they have a public purpose mission that doesn't always help the shareholders," said Moshe Orenbuch, an analyst at Credit Suisse in New York, who has an "underperform" rating on Fannie Mae and Freddie Mac. "All things being equal, lowering down payments in areas that have experienced declines in home prices has got to be more risky."
Fannie Mae and Freddie Mac, created by Congress to increase mortgage financing and provide market stability, fulfill their mission by buying mortgages from lenders so banks have more cash to make new loans. The companies, adjusting to a rise in mortgage defaults, tightened loan standards to limit losses, introducing new fees to buy riskier loans and raising required credit scores.
House Financial Services Committee chairman Barney Frank, a Massachusetts Democrat, said Fannie Mae went "a little too far," and yesterday's decision is a step in the right direction for the government-chartered company to continue its federal mission.
"They're clearly helping," Frank said. "For those who are negative about them, there's obviously this consensus that we have to use them more."
The stricter down payment policy, adopted in December, will end June 1, Washington-based Fannie Mae said. Potential homeowners approved by the company's computer program will be able to borrow up to 97 percent of the value of the property, the company said. Other loans will be accepted with loan-to-value ratios of up to 95 percent. Previously, borrowers in areas such as parts of California, Nevada, and Florida were required to put down 5 percent more equity than elsewhere.
Fannie Mae is eliminating financing of up to 100 percent in other areas, ending programs that targeted first-time buyers.
