WASHINGTON - Bowing to pressure from homeowner and real estate groups, Fannie Mae has backpedaled on the down payment requirements for conforming loans in declining markets it set just six months ago.
Beginning June 1, Fannie Mae will accept up to 97% loan-to-value ratios for conventional, conforming mortgages processed through its Desktop Underwriter (DU) automated underwriting system, and 95% loan-to-value ratios for loans underwritten outside of DU.
This new policy supersedes the policy the company adopted last December that required higher down payments in markets where home prices are declining for any loan intended to be sold off to Fannie Mae.
“We are glad that Fannie Mae seems to have modified its policies on ‘declining markets,’ since we shared a concern with other community advocates that this could produce an unintentional ‘redlining’ effect,” said Clifford Rosenthal, CEO of the National Federation of Community Development Credit Unions, in New York. “We still believe that nonconforming loans and loans to people with less than stellar credit will be harder to get and more expensive than in the past, which will not make life easier for many of the low-income and minority borrowers our credit unions serve.”
When Fannie tried to batten down the hatches by hiking the down payment requirements in declining markets, it set off a firestorm of criticism that the GSE was essentially engaging in redlining, even as supporters suggested the move was needed to help deal with the subprime mortgage meltdown.
Fannie’s decision to step back from its December initiative comes as Congress continues to work on GSE reform legislation (see related story, page 12).
The new national down payment requirements of 3% or 5% will apply to loans for purchase of single-family, primary residences.
“We are stepping up to provide more liquidity and affordability to some of the most distressed communities while also seeking at least a 3% down payment investment through our Desktop Underwriter systems from borrowers to help ensure their success,” said Fannie Mae SVP Jeff Hayward, in a prepared statement.
The Federation has developed a Community Development CU Secondary Market to purchase credit union mortgage loans that are not readily saleable to the GSEs, Rosenthal said.
“Although this is nowhere near their scope, we’re working to provide credit unions serving the low- and moderate-income market another outlet that they can use to expand their lending.”
