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Government Bringing Back 3 Percent Down Payment for Home Loans



In the aftermath of the housing crash, the Federal Housing Finance Agency took control of Fannie and Freddie as they were in serious jeopardy of failing. Underwriting standards were tightened, and $187 billion in taxpayer bailouts were pumped into Fannie and Freddie to keep their doors open. The two mortgage giants have since repaid those bailouts, and made a return to profitability, but continue to operate under the control of the FHFA. Since the recession, Americans borrowing to buy a home have been required to come up with a down payment of 20 percent, on average. At the same time, income growth has been slow to keep up with inflation, leaving many unable to save up for a down payment of that size. That left millions unable to qualify for a home loan, and the amount of home sales to first-time buyers has plummeted. 29 percent of October home sales went to first-time buyers, according to the National Association of Realtors, well below the historical average of 40 percent.

According to an FHFA spokesman, a plan to expand lending to first-time and low-income buyers has been in the works for months, and is just weeks from being implemented. Fannie Mae could begin underwriting 3 percent down loans before the end of the year, while Freddie Mac won't make the changes until next March. The loans will only be offered to lower income buyers, or those that earn less than the median income in their area. Buyers will be required to attend financial counseling, and maintain mortgage insurance. Monthly payments, meanwhile, will not be allowed to exceed 43 percent of a borrower's income.

December 9, 2014