Fannie And Freddie Restart Risky Affordable Housing Programs
Fannie And Freddie Restart Risky Affordable Housing Programs
Mortgage finance giant Fannie Mae just debuted its new “HomePath Ready Buyer Program,” which lets first-time homebuyers get up to a 3% rebate of a home’s purchase price if they buy a Fannie Mae property, so long as they complete an online homebuyer education course which costs $75.00.
The newHomePath Ready Buyer Program, as described by Fannie Mae, could create $4,500 in savings on a $150,000 home for first-time buyers, (defined as borrowers who have not owned a home in the prior three years).
In addition to the 3% rebate, Fannie Mae will refund the cost of the homebuyer education course. Still many of the borrowers targeted for the new programs don’t earn more than their area’s median income
This new program comes after Melvin Watt, director of the Federal Housing Finance Agency, announced last December that Fannie Mae and Freddie Mac would soon start buying mortgage securities backed by 30-year loans with just 3% down payments, which banks largely halted delivering two years ago, instead demanding 20% down.
All part of the Obama Administration’s push to make homeownership affordable to a bigger group of borrowers. Watt says the government now wants to expand the opportunity for homeownership to credit-worthy borrowers who have enough income to afford a loan, but have not saved enough for a larger down payment.
Watt has testified the loans are safe due to guardrails like these: Strong credit scores, housing counseling, and private mortgage insurance. Lenders also get protection from legal liability if they sell loans to borrowers who spend no more than 43% of their income on debt, plus the new program will not allow balloon or interest payment only mortgages.
But is this new effort good for taxpayers and the economy, or is this similar to programs that led to the subprime mortgage crisis and housing crash? Is the federal government acting once again like the boozy bartender handing out free drinks at the frat party?
Will taxpayers be on the hook for another mega-bailout, given that Fannie and Freddie combined were one of the biggest bailout cases of all, at $187.5 billion? Though the two have paid back their taxpayer bailout, and then some, housing analysts have decried free, easy money as the reason for the housing meltdown, arguing, if borrowers can't afford a house, they should rent until they can.
Another argument: why are these supposedly private sector companies still acting like gigantic federal slush funds doing the whim of politicians and mortgage executives seeking to make a buck? The business of Fannie Mae and Freddie Mac is mortgage finance, to offer liquidity in the form of mortgage securities, not housing policy. Fannie Mae and Freddie Mac do not lend mortgages, but rather they buy them from banks, bundle the loans as securities, and then sell them the secondary mortgage markets.
After the housing collapse, and the bankruptcy of Fannie Mae and Freddie Mac, officials in Congress and the Administration argued the two giants’ massive role must be reduced in the housing market, with numerous hearings in Congress on how to wind down these two government-sponsored enterprises.
Jeb Hensarling, chairman of the House Financial Services Committee, has said that the Administration’s new push is “an invitation by government for industry to return to slipshod and dangerous practices that caused the mortgage meltdown in the first place and wrecked our economy” and that they “must be rejected.”
Banks, which aided and abetted the housing bubble, were hit with hundreds of billions of dollars in losses due to defaults and write-downs, and the U.S. economy suffered a severe downturn more than seven years ago.
Critics also argue that, if the housing market turns negative again and prices drop, borrowers with a tiny amount of equity in their homes can quickly go upside down in their loans, owing more than their homes are worth. Borrowers also could face higher costs over the life of these low-down payment loans, including higher interest rates and fees for mortgage insurance.
The latest “affordable housing” push by the Administration comes as mortgage originations have declined precipitously. Lenders sold about $1.12 trillion in mortgages in 2014, down nearly 40% versus a year earlier; and the lowest amount sold since 1997, says the Mortgage Bankers Association. Despite the trillions of dollars flowing through the housing market over the decades, the U.S. homeownership rate plunged to 64.4% from 69.2% in 2004.
First-time buyers have stayed on the sidelines, struggling with high debt, as the housing market has been on an upswing. Usually first-timers make up four out of ten borrowers, but that number plunged to just a third in 2014, says the National Association of Realtors. Fannie’s inventory is loaded with thousands of houses seized in foreclosure, and it needs to move those homes off its books to bring more flexibility to its balance sheet.
However, both Fannie and Freddie already guarantee investors against losses on loans with down payments of as little as 5%, mortgages which require private mortgage insurance. The Federal Housing Administration also already offers mortgages with down payments of as little as 3.5%. FHA is supposed to keep a capital cushion equal to 2% of the value of its outstanding mortgages, but it is years away from achieving that benchmark.
A little history here. Thirty years ago, almost to the day, the Dept. of Housing and Urban Development pushed Fannie to lower down payments to 3%. Both Fannie and Freddie were pushed by the Clinton Administration and Congress beginning in 1992 to increase the number of mortgages sold to poor and moderate income homeowners, after the national media reported banks were redlining neighborhoods and not selling loans there.
Fannie and Freddie then stepped into low or no documentation loans, and later subprime mortgages, leading to their collapse. By 2011, Congress pushed for new rules instructing FHFA to adjust loan prices and guarantee fees to reflect market risk of losses, but critics argue the new programs appear to put those efforts in reverse.
Our team is driven by a shared purpose of working for our clients' best interest. You will receive consistent, top notch service, whether you're a seller or buyer. We provide constant communication and personalized updates.
Our Commitment to Buyers: If you are a new buyer or seller looking to hire our team, we will work with your time frame, lay out your options, and guide you in making the right decision. We'll start with a buyer consultation, understand your needs, offer neighborhood insights and specific property type expertise. We'll coordinate showings, make recommendations, draft your offer, negotiate and guide you through the closing process. You also have the benefit of working with our partners- lenders, contractors, inspectors, appraisers, title agents and attorneys.
Our Commitment to Sellers: We have a client and solution oriented culture. When we list your property, we price it fairly- prepare a valuation with 3 comparable sales and 3 comparable active listings, absorption rate, detailed neighborhood and trend analysis. We will determine your most likely buyer/s, focus our marketing efforts, utilize innovative ways to provide maximum exposure for your home. We always go an extra mile. Clients depend on us for market knowledge and getting the deal done.
* Top 1% Chicago Association of Realtors- 2014, 2013, 2012, 2011
* Licensed Broker in Illinois, Indiana & Wisconsin
* Bachelor of Science in Economics
* Certificate in Finance, Northwestern University, Chicago, IL
* Certificate in Negotiation & Decision Making Strategies- Columbia University, New York, NY
Specialties:Sales & Marketing of Condominiums, Luxury Homes, New Construction, Buyer Brokerage, Foreclosure Property, REO, BPO, Short Sale, Investments, Lake/Beach Property, Relocation, Rentals, Development Land
Does this investment fit well with my financial goals?Have you done th
"I'm a repeat customer. What can I say, Stephany is simply the best in her field! She was our realtor for our first home 6 years ago and again this year for our second home.
Back in 2010, she helped with our first home. Being first time home buyers, we were nervous and had a lot of questions. She was very patient in showing us different properties and in answering our questions until we were ready to decide. She guided us all throughout the process. We received excellent customer service from her that when it was time to look for a new home, we were certain in getting Stephany's services again.
This year, the challenges are different but Stephany and her team were well prepared. We were able to get our dream home - a house that fits our needs AND in the neighborhood that we love. Stephany and her team are simply the best! Thank you so much Steph!"