Fannie Mae Expands Low-Down-Payment Program

Fannie Mae recently made changes to their low-down-payment program in order to make it even easier to get a 3% down mortgage. The program, called HomeReady, is targeted to moderate to low-income renters who want to buy a home, but haven’t saved enough to make a down-payment.

Changes to the program include looser underwriting standards to qualify for the mortgage, allowing financing up to 97% loan-to-value (LTV) for the purchase of a one-unit principal residence, permitting non-first time home buyers to participate, among other changes.

While Fannie Mae claims that the updates to their HomeReady program will “expand access to credit responsibly,” there are two main reasons to be concerned. First, artificially expanding access to credit for those who can’t afford to buy a house is a risky endeavor that could destabilize the housing market. This is exactly what transpired during the housing boom and subsequent collapse that wiped out $9 trillion in home equity.

Second, as a Government-Sponsored Enterprise (GSE) with an implicit government-backed guarantee, Fannie Mae (and Freddie Mac) has delayed the full recovery of the housing market by crowding out private financial service companies. Expanding this low-down-payment program will further cement Fannie Mae’s dominance of the industry and continue to risk taxpayer dollars in the process.

To learn more about what good housing finance policy looks like, read the Heritage Foundation’s Five Guiding Principles for Housing Finance Policy: A Free-Market Vision.

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