Economy, Housing Market, News

Fannie Mae considering cutting purchases of three-percent-down-payment mortgages

180px-Fannie_Mae.svgFannie Mae is reportedly in discussions to reduce its purchases of mortgages that require a minimum down payment of three percent after a review of the company’s lending policies.

While people familiar with the matter maintain that the changes are not the result of loan performance problems, officials are reportedly working on a plan to curb purchases of the loans, which Freddie Mac stopped backing several years ago, The Wall Street Journal reports.

Freddie requires a minimum five percent down payment. Loans without a 20 percent down payment at both Fannie and Freddie must have mortgage insurance or another type of “credit enhancement.”

Though Fannie has not purchased many of the loans, recent changes in the mortgage market have led to an increase in the number of low-down-payment loans available for sale, according to The Wall Street Journal.

The Federal Housing Administration, which insures mortgages with down payments of 3.5 percent, recently increased insurance premiums, and private mortgage insurance companies have started to remove certain restrictions that had previously limited the loans to a smaller number of borrowers.

Better borrowing terms and the rising availability of private mortgage insurance has made it possible for more lenders to offer low-down-payment mortgages in the market, The Wall Street Journal reports.

Fannie does not disclose the number of three-percent-down home-purchase loans it guarantees or buys. Private mortgage insurers, however, have reported an increase in insurance volumes for the loans.

Some mortgage industry participants maintain that Fannie’s changes would not disrupt the market because the FHA will continue to accept loans with 3.5 percent down payments, even though the loans are more expensive, according to The Wall Street Journal.

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