New 97% LTV program expands buyer access to credit
Fannie Mae is rolling out an option for qualified first-time home buyers that will allow for a down payment as low as 3%.
Building upon Fannie Mae’s successful lower-down payment program offered through state Housing Finance Agencies, the 97% loan-to-value ratio option will expand access to credit for qualified first-time home buyers who may not have the resources for a larger down payment.
A recent examination of what’s holding back home buyers argues that the down payment is the biggest challenge for first timers.
These loans will meet Fannie Mae’s usual eligibility requirements, including underwriting, income documentation and risk management standards. These loans will require private mortgage insurance or other risk sharing, as is required on purchase loans acquired by the company with greater than 80% LTV.
“Our goal is to help additional qualified borrowers gain access to mortgages,” said Andrew Bon Salle, Fannie Mae executive vice president for single-family underwriting, pricing and capital markets. “This option alone will not solve all the challenges around access to credit. Our new 97% LTV offering is simply one way we are working to remove barriers for creditworthy borrowers to get a mortgage. We are confident that these loans can be good business for lenders, safe and sound for Fannie Mae and an affordable, responsible option for qualified borrowers.”
Home buyers can purchase a home under Fannie Mae’s standard offering or its My Community Mortgage product with a 3% down payment if at least one co-borrower is a first-time buyer.
In addition, eligible homeowners who wish to refinance their Fannie Mae-owned mortgage but do not qualify under the Home Affordable Refinance Program can refinance their loan up to the 97% LTV level under a limited cash-out option. Lenders must use Fannie Mae’s Desktop Underwriter tool when evaluating mortgage applications for this product.
Fannie Mae says it has implemented prudent risk management practices to ensure that loans the company acquires are appropriately underwritten, including mortgages with lower down payments. These include essentially eliminating risk-layering on purchase money loans, requiring income documentation to avoid “low-doc” or “no-doc” lending, and requiring income verification.
As noted, private capital will be in the first loss position. Mortgage insurers and other risk sharing partners will have to conclude that these loans are prudent to make in order for these loans to be originated and delivered to Fannie Mae in the secondary market.
Fannie Mae has also worked to provide lenders with greater clarity on what circumstances would result in a loan repurchase request. Some lenders have said that uncertainty around these requests has led to them curtailing mortgage availability. This new clarity is intended to help lenders make mortgages to more creditworthy borrowers.