Recently, two important alterations were made to government funding so that credit availability would improve. These changes included Fannie Mae and Freddie Mac’s new 3 percent down payment loans and the FHA’s reduction of fees. Expert mortgage lenders agree these offer a boost to the slumped housing market.
Back in November, the FHFA responsible for overseeing Freddie Mac and Fannie Mae revealed it would allow for loans as low as 3 percent but only for first-time home buyers. Other requirements were made as well. For instance, buyer education, a solid underwriting, and pricing related to risk was necessary.
In January 2005, the FHA unveiled a decrease in the yearly mortgage insurance premium from 1.35 percent to 0.85 percent. Most respondents felt this would motivate production with an approximate increase of 8.5 percent. One-tenth of respondents felt the changes would limit new market entrants.
The National Association of Realtors performed research that estimated the changes would price in up to 140,000 possible homeowners who cannot currently afford to buy houses. The cited 8.5 percent increase is associated to a raise in purchase volume of over 300,000 mortgages. The change is estimated to be the same for purchases and refinances. Overlays remain a mystery in today’s market and may dampen the impact of rate reduction.
In recent months, FHA and GSEs have made groundbreaking strides to improve credit availability, which should provide access and affordability to buyers. However, until lenders no longer worry about legal risks, overlays will limit the full benefits.
