Amongst some heated criticism, Freddie Mac went ahead and created a new program that allows first time buyers to get a mortgage with as little as 3% down payment. Despite claims that these lending practices are what led to the 2008 housing crisis, a spokesman for Freddi Mac stated, “However things are different this time.”
The fears of lax lending standards have proven to be overblown as the new program (and another one like it) has gotten off to a slow start.
The MReport has more:
According to Freddie Mac’s July U.S. Housing Market Insight & Outlook, pre-crisis low payment underwriting allowed layered risk, while post-crisis low payment underwriting controls credit risk by requiring features that reduce risk. Pre-crisis payments were variable, while post-crisis payments are predictable.
“Affordability initiatives that allow low down payments—like Freddie Mac’s Home Possible Advantage (SM)—have raised concerns about the potential return of underwriting practices prevalent prior to the financial crisis, Freddie Mac noted. “However things are different this time.”
The layered pre-crisis underwriting included a combination of multiple features that increased credit risk, according to the outlook. Meanwhile, post-crisis underwriting in the Home Possible Advantage program includes fixed payments, borrower-based underwriting, reliable appraisals, and more.
The Home Possible Advantage(SM) mortgage was introduced by Freddie Mac in March in order to make home ownership more affordable for first-time home buyers and low-and-moderate income borrowers. When using this program, borrowers can receive a reduced down payment for as little as 3 percent down. Borrowers can even obtain the down payment as a gift from a family member or employer or as a grant from a government agency.
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