Federal Housing Finance Agency Director Mel Watt on riday offered several details about the guidelines his agency intends to issue for loans with 3-5 percent down payments to be purchased by housing GSEs Fannie Mae and Freddie Mac.
Speaking to a housing industry conference in New Orleans, Watt explained that the agency’s goal is to help address some of the headwinds to first-time homeownership. “We know that the size of a down payment -- by itself -- is not the most reliable indicator of whether a borrower will repay a loan,” he explained.
But to ensure the guidelines support safety and soundness, Watt said that the FHFA will require GSE-eligible low-down-payment loans to factor in “risk mitigants,” such as housing counseling, stronger credit histories and lower debt-to-income ratios, as well as private mortgage insurance.
Read the speech.