In the past few years those hoping to get mortgages have often faced a tough time. Lenders have required near perfect credit scores in addition to large down payments, thwarting many would-be home owners.
Now conditions are about to change as Fannie Mae and Freddie Mac, the government backed mortgage lenders that guarantee the majority of new mortgages have introduced new guidelines that should make it much easier for borrowers to obtain home loans. Both agencies are reducing the down payment requirements and are making it much easier for loans to be classified as qualified mortgages. In addition they have also clarified when lenders will be responsible for defaulting borrowers. The article in CNN Money.com points out this is quite different from in the past as lenders have been forced to buy back loans that have defaulted soon after being issued, for example if the borrower obtained the loan fraudulently or if there were any mistakes made to the paperwork. This is been a huge concern to lenders who have often found the guarantee fails when most needed.
Previously lenders had found it quite difficult to understand exactly when they would be required by Fannie Mae or Freddie Mac to repurchase these loans. Under the latest rules any loans that don’t have any missed payments for 36 consecutive months after first being issued will be backed by Fannie Mae or Freddie Mac should the borrowers then default. In addition, lenders will allow borrowers to miss 2 payments in the first 36 months without forcing them automatically into foreclosure.
Private mortgage insurance is required for all low down payment mortgages, but if this is later rescinded then lenders will not automatically be required to repurchase the loans. It’s hoped these new rules will make Fannie Mae and Freddie Mac guarantees more like real insurance. The introduction of these new regulations should also boost mortgage lending through removing any uncertainty over buyback issues.
Additionally, Fannie Mae and Freddie Mac will start backing 3% down payment loans. At the moment borrowers can get 3.5% down payment loans from the FHA but they are required to pay mortgage insurance premiums for the life of the loan. The lower down payment loans should help boost home buying for first-time buyers and those on lower incomes as both these sectors have been absent from the housing market during the past 12 months. These low down payment loan do come with specific requirements, and Freddie Mac’s is not being introduced until late March.