The critics of a new program from mortgage giants Fannie Mae and Freddie Mac are crying foul and declaring that a rerun of the housing market bubble could be in the works.

Mortgages with a 3% Downpayment: Are Fannie, Freddie Creating a New Bubble?

Mortgages with a 3% Downpayment: Are Fannie, Freddie Creating a New Bubble?

Mortgages with a 3% Downpayment: Are Fannie, Freddie Creating a New BubbleThe critics of a new program from mortgage giants Fannie Mae and Freddie Mac are crying foul and declaring that a rerun of the housing market bubble could be in the works.

Are tightened lending standards and stricter oversight of Fannie and Freddie sturdy enough to withstand this round of programs to allow low-income borrowers a shot at homeownership?

Whichever side you fall in this debate, the concerns should be heard, if anything to avoid anything close to the 2007-2008 crisis peak.

Mortgage financing giants Fannie Mae and Freddie Mac, which do not lend but purchase most home loans for repackaging, are launching programs that will guarantee loans with down payments of as little as 3 percent.

Lax lending standards to open up the housing market for low-income, first-time buyers were widely faulted for triggering the 2008 financial crisis.

“It sounds a little risky,” Nobel Prize-winning economist Robert Shiller told CNBC. “Risky for the lender, and for the mortgage insurer who is going to insure (the mortgage obligations)”.

Shiller bolstered his reputation by predicting the last decade’s housing bubble.

To qualify for Fannie’s and Freddie’s mortgage programs with just 3 percent down, borrowers must have a credit score of at least 620. They must also be able to able to prove income, assets and job status, and purchase private mortgage insurance.

But is that enough protection?

“I’m all for supporting low-income housing, but in the aftermath of the housing crisis there was a sense that we have to wind down Fannie and Freddie,” said Yahoo Finance Editor in Chief Aaron Task. “The opposite is happening.

We are rebuilding Fannie and Freddie and we are rebuilding the same system that got us in all that trouble in the first place.”

Economist Edward Pinto, who heads the conservative-leaning American Enterprise Institute’s Center on Housing Risk, said new 3 percent-down mortgages can leave borrowers susceptible to default during recessionary periods, largely because it will take them too long to build equity.

“No one ever starts one of these programs saying, ‘We’re going to make bad loans,’” Pinto said. “It’s based on 30-year, fixed-rate amortization; that’s not a sustainable way of putting people into homes.”

 

 

1 Comment
  1. I would advise ANYONE and EVERYONE to RUN FAR FAR AWAY from any loan that Fannie Mae is involved in . Go to your local credit unions instead. Fannie Mae, in collusion w/Bank of America, Green Tree, and their “substitute trustee” lawyers are fabricating ” ta-da” endorsements and yes , even forging owner’s names on mortgage notes to fraudulently foreclose on homeowners across the country. Run, don’t walk, away from these evil entities. DO not do business w/them as they will lie and cheat you to rob you , they will blatantly lie to you about a modification. BOA cut a deal with the states attorney’s due to their robosigning scandal and they promised to modify the loans. They lied and instead sold the loans to evil Green Tree who also lies, even more so. They will lie to you and then they will proceed to committ fraud upon the courts by forging and doctoring mortgage papers and submitting them to fraudulently foreclose and they are doing it in massive numbers RIGHT NOW. They don’t care about you, they only care about their almighty dollar and they will do whatever it takes, illegal or not. Save your soul and run far far away.

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