Fannie Mae will buy 97% LTV mortgages

this is not a normal cyclical event. This is plain and simple government interference into the market. The President made absolutely sure that the person he picked as the chairman of the FHFA, long time Dem Congressman Mel Watt, would loosen up Fannie's and Freddie's lending standards. Something that the previous chairman flatly refused to do FOR OBVIOUS REASONS!

So now we have Mel Watt taking the place of longtime Dem operative Jim Johnson, the former Fannie CEO who loosened up lending standards back in the 1990s.

As in the 1990s the banks thus far are refusing to go along so I'm sure there will be some lawsuits which force the banks to loosen their overlays. I wonder if there will be a new HUD secretary, like Andrew Cuomo, HUD head 1997-2001, who brags about forcing Fannie and Freddie to buy subprime mortgages like Cuomo did. That act of unbelievable stupidity certainly didn't hurt his political career since he is now Governor of NY.

It saddens me to think of all of the people who will be hurt by this move. I wish everyone could own their own home, but as even Barney Frank said 'government subsidies should be focused on affordable rental housing, not in pushing low income people into owning homes that they can't afford.'

Bottomline-it will take time, but this will be a tragic move on the government's part.

@Albert Bui a 2% change in down payment requirements may not seem like a lot but it does when you consider almost 50% of Americans can't come up with $2,000 in 30 days.

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Joel OwensBusiness Member
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Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
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It's all cyclical. Lenders tighten up and when the market appears better then loosen up again.
I expect the residential and commercial markets to keep loosening up. Might not reach the extremes of before but there is more room to go from what I am seeing.
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Albert Bui
Lender · Bellevue WA & Orange County, CA · Member since 2013 · 2k+ posts · 1k+ votes
11y
Originally posted by @Andrew Eaton:

Saw FNMA article this morning. "Fannie Mae will buy 97% LTV mortgages"
You must be joking. [looks to see if this is an Onion article]...
I wish I were joking.
Haven't we been here and done this? This didn't end well the last time around.
But wait, this time it's different!
http://www.housingwire.com/articles/31783-fannie-m...
HI Andrew,
There used to be a 97% LTV program they reduced it to 95% but its not a far stretch from 5% down to 3% down.
I think for such marginal difference in down payment it will be irrelevant for the default rate of the loans as long as prudent income, asset, and credit verification is done.
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Martin Vendemia
Real Estate Investor · Monrovia, MD · Member since 2014 · 3 posts · 0 votes
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Andrew,
I appreciate your spotting this article. Will have to look into it for some upcoming deals
Martin
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Cal C.
Investor · Peachtree Corners, GA · Member since 2014 · 1k+ posts · 1k+ votes
11y
@Joel Owens
this is not a normal cyclical event. This is plain and simple government interference into the market. The President made absolutely sure that the person he picked as the chairman of the FHFA, long time Dem Congressman Mel Watt, would loosen up Fannie's and Freddie's lending standards. Something that the previous chairman flatly refused to do FOR OBVIOUS REASONS!
So now we have Mel Watt taking the place of longtime Dem operative Jim Johnson, the former Fannie CEO who loosened up lending standards back in the 1990s.
As in the 1990s the banks thus far are refusing to go along so I'm sure there will be some lawsuits which force the banks to loosen their overlays. I wonder if there will be a new HUD secretary, like Andrew Cuomo, HUD head 1997-2001, who brags about forcing Fannie and Freddie to buy subprime mortgages like Cuomo did. That act of unbelievable stupidity certainly didn't hurt his political career since he is now Governor of NY.
It saddens me to think of all of the people who will be hurt by this move. I wish everyone could own their own home, but as even Barney Frank said 'government subsidies should be focused on affordable rental housing, not in pushing low income people into owning homes that they can't afford.'
Bottomline-it will take time, but this will be a tragic move on the government's part.
@Albert Bui a 2% change in down payment requirements may not seem like a lot but it does when you consider almost 50% of Americans can't come up with $2,000 in 30 days.
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Ezra Nugroho
Investor · Milpitas, CA · Member since 2014 · 116 posts · 103 votes
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Next move: FNMA no longer restrict a person to have only 4 conventional loans. Then we can probably time the next bubble burst.
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Albert Bui
Lender · Bellevue WA & Orange County, CA · Member since 2013 · 2k+ posts · 1k+ votes
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Originally posted by @Ezra Nugroho:

Next move: FNMA no longer restrict a person to have only 4 conventional loans. Then we can probably time the next bubble burst.
Fannie Mae allows up to 10 conventional non owner and 2nd homes, perhaps you were referring to Freddie Mac whom is limited to 4 financed properties or your bank/loan officer who has told you that 4 is "the," limit but rather it was "their," limit....
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Ezra Nugroho
Investor · Milpitas, CA · Member since 2014 · 116 posts · 103 votes
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@Albert Bui I probably misunderstood, but I thought that FNMA used to allow 10, and has reduced that to 4.
In general looser lending policy is probably good for investors initially, but it may eventually pushes valuations towards a bubble.
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Joe Impagliazzo
Real Estate Lender · Newport, RI · Member since 2014 · 182 posts · 33 votes
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@Andrew Eaton @Cal C.
Previously when they had this you got crushed on rate adders and the PMI, so it was not even worth it for 2%
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Albert Bui
Lender · Bellevue WA & Orange County, CA · Member since 2013 · 2k+ posts · 1k+ votes
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@Joe Impagliazzo
That was not the experience I had with 97% LTV loans back in 2010-2012.
The pricing was the same at 95% LTV loans (maybe not at lower fico scores) most of my borrowers are 700-740 so that may skew things a bit but the only thing that was more was the mortgage insurance premiums. To do a 95% LTV loan and payoff the MI its around 2.25 points at 740+ fico score and at 97% LTV it would have been 3.375 pts approx. So yeah it may cost the average borrower about you 1.125 pts "more," upfront but that was marginal since there were so many ways to "absorb," this cost for the average buyer.
Back in those days I'd just help the buyers agent negotiate this 3.375 pts from the seller since it was a buyers market and sellers were desperate so most of the time the buyer came in with 3% down and did not have any monthly mortgage insurance because the single premium MI cost was delegated to the seller and was a "wash," after the seller credit.
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Joe Impagliazzo
Real Estate Lender · Newport, RI · Member since 2014 · 182 posts · 33 votes
11y
@Albert Bui
I think I need your pricing!
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