Wednesday, November 6, 2013

Fannie is Eliminating 3% Down

It has been announced that Fannie Mae is eliminating the 3% down program for home purchases. So, does this mean FHA loans will be competitive again? Since FHA announced in the middle of this year that in addition to hiking the mortgage insurance premium to almost double what it was two years ago, FHA will not allow the cancellation of mortgage insurance for the entire life of the loan on new originations. This meant that if you wanted to put 3% or 3.5% down on a home purchase in most of 2013 and you used an FHA loan - you would be paying approximately double than if you took a regular Fannie Mae Conventional Loan. FHA, with its financial troubles, needed to increase their revenues. They chose to add costs to their loans. Well, they added so many costs that they priced themselves right out of the market two fold!

So now, it appears that Fannie Mae has heard FHA's message:

FHA: "Hey Fannie, you are pricing me out of the business"
Fannie: "Well, FHA, you priced yourself out with those ridiculous increases in mortgage insurance premiums. Then you really shot yourself in the foot stating that new loans will not be allowed to cancel mortgage insurance ever"
FHA: "Yes, but we are broke"
Fannie: "The reason you are broke is because you fail to use common sense and make wide sweeping changes to your policy that render you obsolete"
FHA: "But we are more powerful than you - and the Federal Government needs us to survive"
Fannie: "Ok, we will get rid of 3% down loans"

If you are a buyer and cannot put down at least 5%, you will require FHA financing going forward. Did FHA become competitive or is this a forced manipulation of our economy? 

I am always available to discuss these issues or any other pertinent market topics and can be reached at .

Thank you very much!