The 3% down payment mortgage has been made available to consumers with a speed rarely seen in this business, in large part because more lenders than ever are selling loans directly to Fannie Mae and Freddie Mac.

In the past, originators that sold loans to aggregators or wholesale lenders had to wait until the purchaser put in its own additional guidelines for the product, or overlays, on top of what the government-sponsored enterprises required. That process could take a couple of weeks. By selling directly to the GSEs, lenders are able to put this product on the menu much quicker.

"The market dynamics today are different than they were three or five years ago," said Bill Cosgrove, chief executive at Union Home Mortgage of Strongsville, Ohio.

The quick roll-out of this product has been a nice holiday season gift for an industry that did not get the expected boost in purchase business from first-time homebuyers and millennials it was expecting in 2014.

To take full advantage of the gift, the industry needs to make consumers aware that low down payment loan products are available.

"If you want to push it, market it and get it out there, I think you should absolutely be able to increase your business if you market it to your clients and real estate agents and everybody else," said Michael Deery, president of Citywide Financial, a mortgage brokerage based in San Diego.

Another factor behind the speedy introduction of the loan is the impact of the qualified mortgage rule. Before the mortgage crisis, the credit box had more grey areas. The source of this ambiguity was the GSEs' automated underwriting systems, Cosgrove said.

For example, the automated underwriting systems would approve loans with total debt-to-income ratios as high as 55%. A lot of lenders that sold to the GSEs were not comfortable with that because of the risk they would be assuming. And so those lenders had to decide what overlays they wanted, and making those decisions took time.

Today the credit box is more defined because of QM and "it is making it easier for us to make quality control decisions, make underwriting decisions and make the risk decision to bring the product to market."

To be sure, it was not exactly a secret in the industry that Fannie Mae and Freddie Mac would be reintroducing the 3% down mortgage. Mel Watt, the director of the Federal Housing Finance Agency, had mentioned the regulator was going to be moving the GSEs in this direction at the Mortgage Bankers Association annual convention in Las Vegas in October.

Because of the indications this was on the horizon, Union Home Mortgage took a proactive approach, said Cosgrove, who was installed as chairman of MBA at the convention.

"It just made sense for us to have a small task force ready to implement this," he said.

Union Home gets 90% of its production from retail and 10% from wholesale. The company is not yet offering the product to brokers but it plans to.

It has a lot of experience with first-time homebuyers, in the Federal Housing Administration sector and with the conforming market's 95% and old 97% loan-to-value ratio programs. "For us it was a natural fit" to add the 3%-down conforming product, Cosgrove said.

Ditech added the 3% down product to its retail offerings on Dec. 15 and to the correspondent originators it purchases loans from a week later.

"We feel that Fannie Mae is an important partner to us, we are in agreement with their overall policy and strategy and we're trying to be a good partner," said Rich Smith, the chief marketing officer for the Fort Washington, Pa., mortgage lender. "I don't know if we're going to change any of our marketing or advertising or target people any differently as a result of having the product available, but we felt it was important for us to be ready when they were and we are."

For the 2015 spring home buying season, having this product available will be instrumental in helping Ditech reach more first-time homebuyers, Smith said. It will have marketing programs aimed at first-time buyers and this product will let Ditech qualify and serve more of them.

Smith sounded a note of caution, saying the product could help drive more purchase business but it will not move the needle back toward a healthy purchase market. More fundamental changes need to happen with the U.S. economy to break this logjam, he said.

Indeed, in addition to QM, the 3%-down loans still have to meet the ability-to-repay rules, noted Ron D'vari, the CEO of NewOak Capital in New York. So the borrower's income has to support the debt burden for the loan to happen, he said.

Not all lenders have been early adopters of this product. There has been little activity on Zillow's online Mortgage Marketplace when it comes to its participating lenders marketing this product.

"We're not hearing about a lot of demand from our lenders to reduce their down payment minimums thanks to the new 3% down payment programs," said Erin Lantz, the vice president of mortgages at Zillow, based in Seattle. "We expect the adoption will increase in 2015, but it's too soon to see a material improvement in credit availability for low down payment consumers."

There are some mortgage wholesalers jumping on this bandwagon and offering the product to the mortgage brokers they buy from, such as 360 Mortgage, based in Austin, Texas, and United Wholesale Mortgage, headquartered in Troy, Mich.

"Immediately after Fannie Mae released version 9.2 of DU, we had the opportunity to reintroduce this program given Fannie's changes," stated Mat Ishbia, the president and CEO of United Wholesale, in a press release.

360 Mortgage began offering this loan to brokers on Dec. 13.

"We had a little get-together and decided we were going to do that product with zero overlays. So we rolled it out to our sales force," said 360's wholesale production manager, Shane O'Dell.

"We're hearing a lot of media buzz about this outside of the mortgage media circles. We think that anytime that hits the public out there from a general media perspective, we're going to see more and more that business, so we want to make sure we're one of the first ones out there to start capturing that business."

The company is offering the 3% down loan through the retail and aggregator channels as well.

But since the loan is going to require private mortgage insurance before it can be sold to the GSEs, they are going to be re-underwritten by those companies, O'Dell noted. "So we've got basically two sets of guidelines to underwrite to, to get those loans insured."

Citywide Financial in San Diego, is already marketing these loans to consumers through emails and a column Deery writes for the San Diego Union-Tribune.

"I was doing very well with this before they took it away" in the aftermath of the housing downturn, he said. There are a lot of people in today's market who could buy a home with a 3% down payment but couldn't do so at the 5% threshold.

And even though FHA is just 3.5% down, the upfront and monthly mortgage insurance premiums make it a more expensive option. Plus, FHA mortgage insurance is not cancellable, as private mortgage insurance is.

Comparing the 3% conventional product to the 3.5% down FHA loan, "apples to apples, on a $400,000 home, you'll easily save between $300 and $400 a month just by going with conventional," Deery said.

The high cost to the consumer of FHA mortgage insurance will drive the more-creditworthy borrowers to the GSE product, O'Dell added.

But the industry is looking to make the FHA product more competitive with this GSE offering. On Dec. 18, a group of 18 Democratic U.S. Senators sent a letter to HUD calling on the agency to reduce FHA premiums. The MBA sent a similar letter the same day.

While the conforming product right now is a better option than the FHA product, Cosgrove said, "we are encouraging FHA to lower their ... premiums to be more competitive and a cheaper source of mortgage financing for first-time homebuyers."

NAMB, a mortgage broker trade group, has also come out in favor of an FHA premium reduction

"From an industry perspective, it makes sense for the FHA," said Don Frommeyer, the trade group's CEO, in a press release. "If premiums remain this high, the Administration will be flooded with mortgage applications by borrowers with lower credit scores, while those with better credit will finance through Fannie Mae and Freddie Mac."

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