360 Mortgage Among The First To Offer GSEs’ 3% Down Loans

Austin, Texas-based regional mortgage lender 360 Mortgage Group is now accepting Fannie Mae and Freddie Mac 97% loan-to-value (LTV) products.

In a release, the company says it has directed its mortgage brokers to start marketing the new products to customers.

The government-sponsored enterprises (GSEs) officially announced their respective 97% LTV products on Dec. 8; however, they will be launching them on different dates. Fannie launched its ‘My Community Mortgage’ program on Dec. 13, whereas Freddie will be launching its Home Possible Advantage program in March. In order to qualify for government backing, the loans must have been processed using the GSEs' respective underwriting systems.

The plan to have the GSEs allow up to 97% LTV on certain loans was first unveiled in October during the Mortgage Bankers Association's annual convention and expo. During that event, Mel Watt, director of the Federal Housing Finance Agency (FHFA), conservator of Fannie Mae and Freddie Mac, announced that the FHFA was working with the GSEs ‘to develop sensible and responsible guidelines for mortgages with LTV ratios between 95 and 97 percent,’ meaning, in other words, loans with a 3% to 5% down payment.

‘Through these revised guidelines, we believe that the enterprises will be able to responsibly serve a targeted segment of creditworthy borrowers with lower down payment mortgages by taking into account compensating factors,’ Watt said.

The GSEs also recently announced significant changes to their representation and warranty frameworks that will help bring greater clarity as to when lenders will be subjected to loan buybacks. By clarifying and easing the rules around loan buybacks, the FHFA and the GSEs hope to entice lenders to loosen up their self-imposed internal overlays and make more loans to lower-income borrowers.

Although these new programs allow lenders to offer mortgages with down payments as low as 3%, that doesn't mean the industry is reverting back to the lending practices of the past: Both companies are quick to point out that these loans will be underwritten using a much stricter set of criteria compared to the low-down-payment, no-down-payment loans of the mid-2000s.

The loans will require private mortgage insurance or other risk sharing, as is required on all purchase loans acquired by the GSEs.

‘Our goal is to help additional qualified borrowers gain access to mortgages,’ says Andrew Bon Salle, executive vice president for single-family underwriting, pricing and capital markets for Fannie Mae, in a recent release. ‘This option alone will not solve all the challenges around access to credit. Our new 97 percent 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.’


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