Fannie, Freddie and FHFA Low Down-Payment Mortgage Program

Fannie Mae, Freddie Mac and their regulator provided details on Monday for a low down-payment mortgage program, which could open homeownership to thousands of cash-strapped borrowers.

The mortgage-finance companies and the Federal Housing Finance Agency said borrowers could be able to get mortgages with down payments as little as 3%, but noted that the loans will be available only to first-time buyers, buyers who haven’t owned a home for at least a few years and those with lower incomes.

Many of the loans will also require borrowers to undergo home-buyer counseling before making a purchase.

Fannie’s low down-payment loan program and Freddie’s program will have slightly different requirements. Officials at both companies said the 3% down-payment loans could be made to borrowers with credit scores of as low as 620, which is the standard minimum, if they had other factors to mitigate their risk, such as lower debt-to-income ratios or high reserves.

Fannie said its program will be limited to borrowers who haven’t owned a home in the past three years. Freddie’s program will generally be available to borrowers who don’t make more than their area’s median income.

Freddie’s program “gives qualified borrowers with limited down payment savings a responsible path to homeownership and lenders a new tool for reaching eligible working families ready to own a home of their own,” said Freddie Mac executive Dave Lowman.

Fannie’s program goes into effect almost immediately, while Freddie’s won’t be available until March. An FHFA official in a call with reporters said that because lenders generally take some time to adapt to new guidelines, they don’t expect the new low down-payment mortgages to be widely available until the end of the first quarter of next year.

Mel Watt, who heads the FHFA, first announced the new program in October along with other changes that some banks say will make it easier for them to make loans. The new program was lauded among some lenders and analysts who have said that mortgage availability has been too limited over the last couple of years.

In a statement, Mr. Watt said that the guidelines “provide a responsible approach to improving access to credit while ensuring safe and sound lending practices.”

Critics have expressed concern that mortgages with low down payments could expose borrowers, Fannie and Freddie to some of the risks that precipitated the financial crisis. If home prices drop, homeowners with a small amount of equity in their homes can quickly owe more than their homes are worth.

Still, even those homeowners don’t necessarily default. According to the Urban Institute, about 0.4% of borrowers in 2011 who made down payments of 3% to 5% have defaulted, no worse than borrowers who made down payments of 5% to 10%.

Fannie and Freddie don’t make loans, but buy them from lenders, wrap them into securities and provide guarantees to make investors whole if the loans default.

Both companies already guarantee loans with down payments of as little as 5%. Those mortgages, as with the new 3% down payment mortgages, require borrowers to pay for private mortgage insurance.

It isn’t yet clear how popular the new down-payment programs will be. Borrowers can already get mortgages with down payments of as little as 3.5% through the Federal Housing Administration, though the costs of such loans have increased markedly over the past few years.

Fannie and Freddie officials said that they expect the low down-payment loans they guarantee to be cheaper than FHA loans for borrowers with higher credit scores. An FHFA official said that they expected the new loans to be a small proportion of the companies’ business.

“We are confident that these loans can be good business for lenders, safe and sound for Fannie Mae and an affordable, responsible option for qualified borrowers,” said Fannie Mae executive Andrew Bon Salle.

Next in Housing Market: Digital 3-D

3D technology has made it onto television screens — and now it’s changing the way real estate is bought and sold. WSJ’s Josh Barbanel reports. Photo: Agaton Strom for The Wall Street Journal

Soon apartment hunters in Manhattan may no longer be required to tramp from one open house to the next only to rule out unsuitable properties.

Instead, they will be able to take high-definition walk-throughs of listings through a sort of Google Street View for real estate.

Halstead Property, a brokerage with 1,200 agents in the New York metropolitan area, has just adopted the 3-D technology and says it will become a standard feature for many of its Manhattan listings.

The tool allows buyers to tour a property online, peering out of windows and checking details from kitchen appliances to bathroom fixtures. A mouse click allows a viewer to virtually descend right into a room.

It is the sort of technology that many in the real-estate world say could revolutionize their industry, following earlier innovations such as full-color print advertisements, web listings, photo slideshows and video tours.

“It is all about additional transparency for the consumer,” said Diane M. Ramirez, chief executive of Halstead Property. “That is what I find so exciting about it.”

While the edited videos “give you the essence of the apartment, this allows you to delve into the actual rooms,” she said.

A sister company, Brown Harris Stevens, also owned by Terra Holdings LLC, is planning to introduce 3-D walk-throughs of its listings early next year, a spokeswoman said. Among the city’s other top residential real-estate players, Douglas Elliman said it has been closely following developments in the field, while a spokesman for the Corcoran Group said it was “looking into the technology.”

In contrast to highly produced video tours, everything the 3-D camera sees appears as is and is essentially unedited. It is free of broker babble or spin, and is interactive and under the control of the viewer.

The 3-D system used by Halstead was introduced in July by Matterport Inc., a three-year-old Mountain View, Calif., startup. Matthew Leone, director of web marketing at Halstead, said the company had been testing the camera for months but waited until some bugs were fixed before putting it into production.

Meanwhile, Redfin Corp., a discount online real-estate broker, bought Matterport cameras for half of its 48 broker offices across the U.S. Its agents have produced more than 850 high-tech walk-throughs so far, a Redfin spokeswoman said.

“It is going to be used in any camera-ready home, homes that will shoot well,” said Mr. Leone of Halstead, “without regard to price point. Our job is to sell homes, and this initiative can help.”

The costs are low enough to be comparable to or less than professional photographs of apartment listings, Mr. Leone said. Prices on the Matterport website are $4,500 for a camera, plus $19 charged to the brokers for each produced tour, and monthly hosting fees.

Eventually 3-D capture technology will be built into cellphones, said Bill Brown, chief executive officer of Matterport, which is a partner of a Google-sponsored 3-D project known as Project Tango to create hardware and software needed for 3-D in smartphones.

In a four-bedroom duplex penthouse loft on West 22nd Street, videographer Ray Parada connected a tripod to the Matterport camera, a rectangular black box with a collection of lenses and sensors on the front.

Mr. Parada set it down in the 33-foot-wide living room, stepped into another room and pressed a button on an iPad. The camera began to hum as it spun around, pausing at intervals as it captured images and recorded distances between objects. The images and data were transmitted via Bluetooth to the iPad.

He then moved the camera dozens of times through the apartment. As the images were processed, a floor plan of the apartment began to fill out. When the shoot was done, the file was transmitted to Matterport, which created the 3-D showcase and put it on a server.

As a user navigates deep into a bedroom on the 3-D display for the penthouse, past an antique gold mirror, there is a surprise—a view through a window of a splash of green grass along the High Line.

Elissa Burke, a Halstead broker who also owns the condo listed for $7.2 million, said she expected the 3-D walk-through would be an important feature, especially for foreign buyers who want to screen properties remotely and for people who are undecided.

Even before 3-D, she said, “people who are undecided, they go back over to the pictures and the video over and over again.”

By: Josh Barbanel - The Wall Street Journal

Mortgage Rates Hit Lowest Level of the Year Again

The 30-year fixed-rate mortgage dropped to its lowest point of the year as 10-year Treasury yields closed at their lowest level since May 2013, according to Freddie Mac.

This week, the 30-year fixed-rate mortgage fell to 3.80%, down from 3.93% last week. A year ago this time, it was 4.47%, according to the Primary Mortgage Market Survey.

“The temporary decline in rates will likely be short-lived,” said Jonathan Smoke, chief economist at realtor.com®.  “Those who can take advantage now and lock in a purchase or refinance at these levels may never see these rates again.”

Falling mortgage rates can be attributed to global economic jitters and plunging oil prices, according to Bankrate.

With the Russian currency in crisis, there is a flight to safety, Smoke added.

“The dollar and U.S. treasuries have become a safe haven for international investment, and when demand for bonds increases, rates go down,” he said.

The 15-year fixed-rate mortgage also came down this week, to 3.09% from 3.20% last week. The rate was 3.52% a year ago this time. In addition, the 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.95% this week, 2.98% last week and 3% a year ago this time.

The 1-year Treasury-indexed ARM averaged 2.38% this week, down from 2.40% last week and 2.56% a year ago this time.

A majority of mortgage experts surveyed by Bankrate.com expect rates to either remain unchanged or dip again next week. Among the experts, 42% believe rates will dip again, while another 42% said rates will remain unchanged. Just 16% of respondents thought rates would increase, according to the Bankrate.com Rate Trend Index.

“This is likely the last of the low rates,” said Smoke. “We’re likely to see increases in the weeks ahead.”

Paving the Way for More First-Time Buyers in 2015

Even as the housing market gets back on track, the numbers of first-time buyers continue to disappoint. This is strongly associated with the tight credit requirements facing would-be buyers. Recent important government policy changes and the introduction of new low down-payment programs, however, should set the stage for increased first-time buyer activity in 2015.

Clarity on Mortgage Qualifications

Both Fannie Mae and Freddie Mac finalized mortgage qualification guidelines that went into effect on Dec. 1. These guidelines clarified murky qualification standards set in place as a result of the Dodd-Frank reforms, which were intended to prevent a repeat of the financial crisis.

Up until now, the absence of specific rules and clear guidance on what types of errors would prompt Fannie or Freddie to reject a loan, leaving the underwriting bank or lender on the hook, led to very conservative lending practices. To avoid the risk of Fannie or Freddie rejecting a mortgage months or years after it closed, banks added “overlays,” or additional requirements, to the proposed guidelines.

As a result, according to Ellie Mae, a mortgage software company, the average denied credit score on conventional purchase mortgages in October was 723 even though the minimum standard set by both Fannie and Freddie was 620.

The new standards should lead to thousands more consumers being able to get a mortgage and should also speed up the underwriting and approval process.

Measures of mortgage credit availability from the Mortgage Bankers Association already indicate a slight loosening of credit in November prior to these rules going into effect. All three measures of mortgage credit availability were also higher than November of last year, between 3% and 5%. If that trend continues, it will indeed mean that we are seeing standards revert to more normal levels.

More Attractive Low Down-Payment Mortgages

Earlier this week, Fannie Mae and Freddie Mac both announced the details of new low down-payment mortgage programs they will be offering that enable qualified buyers to purchase a home with down payments of as little as 3%.

While these programs only lower the down payment threshold by 0.5% from similar loans available from the Federal Housing Administration (FHA), they will likely be far more attractive to consumers than the FHA loans. These new programs avoid the FHA fees that effectively increase the rate charged. Another advantage over FHA is the borrower’s ability to stop paying private mortgage insurance fees once the equity of the home reaches 20%.

Fannie Mae’s offering will be the first available to qualified borrowers who have not owned a home before or within the last three years. But Fannie Mae doesn’t lend directly, so it may take some time before we see specific lender offerings—perhaps in early 2015.

Clarifying when lenders are at risk and offering low down payment programs should increase flexibility in mortgage qualification.   This should pave the way for more first-time buyers in 2015. If we start to see specific competitive low down-payment lender offerings and evidence that standards are loosening, the spring selling season may start earlier than normal. After all, first-time buyers do not have to sell an existing home and can jump into the market at any time.

Jonathan Smoke is realtor.com®’s chief economist.

4 Tips to Determine How Much Mortgage You Can Afford

By knowing how much mortgage you can handle, you can ensure that homeownership will fit in your budget.

Homeownership should make you feel safe and secure, and that includes financially. Be sure you can afford your home by calculating how much of a mortgage you can safely fit into your budget.

Why not just take out the biggest mortgage a lender says you can have? Because your lender bases that number on a formula that doesn’t consider your current and future financial and personal goals.

Think ahead to major life events and consider how those might influence your budget. Do you want to return to school for an advanced degree? Will a new child add day care to your monthly expenses? Does a relative plan to eventually live with you and contribute to the mortgage?

Consider those lifestyle issues as you check out these four methods for estimating the amount of mortgage you can afford.

1.  Prepare a detailed budget.

The oldest rule of thumb says you can typically afford a home priced two to three times your gross income. So, if you earn $100,000, you can typically afford a home between $200,000 and $300,000.

But that’s not the best method because it doesn’t take into account your monthly expenses and debts. Those costs greatly influence how much you can afford. Let’s say you earn $100,000 a year but have $1,000 in monthly payments for student debt, car loans, and credit card minimum payments. You don’t have as much money to pay your mortgage as someone earning the same income with no debts.

Better option: Prepare a family budget that tallies your ongoing monthly bills for everything -- credit cards, car and student loans, lunch at work, day care, date night, vacations, and savings.

See what’s left over to spend on homeownership costs, like your mortgage, property taxes, insurance, maintenance, utilities, and community association fees, if applicable.

2.  Factor in your downpayment.

How much money do you have for a downpayment? The higher your downpayment, the lower your monthly payments will be. If you put down at least 20% of the home's cost, you may not have to get private mortgage insurance, which protects the lender if you default and costs hundreds each month. That leaves more money for your mortgage payment.

The lower your downpayment, the higher the loan amount you’ll need to qualify for and the higher your monthly mortgage payment.

But, if interest rates and/or home prices are rising and you wait to buy until you accumulate a bigger downpayment, you may end up paying more for your home.

3.  Consider your overall debt.

Lenders generally follow the 43% rule. Your monthly mortgage payments covering your home loan principal, interest, taxes and insurance, plus all your other bills, like car loans, utilities, and credit cards, shouldn’t exceed 43% of your gross annual income.

Here’s an example of how the 43% calculation works for a homebuyer making $100,000 a year before taxes:

1.    Your gross annual income is $100,000.

2.    Multiply $100,000 by 43% to get $43,000 in annual income.

3.    Divide $43,000 by 12 months to convert the annual 43% limit into a monthly upper limit of $3,583.

4.    All your monthly bills including your potential mortgage can’t go above $3,583 per month.

You might find a lender willing to give you a mortgage with a payment that goes above the 43% line, but consider carefully before you take it. Evidence from studies of mortgage loans suggest that borrowers who go over the limit are more likely to run into trouble making monthly payments, the Consumer Financial Protection Bureau warns.

4.  Use your rent as a mortgage guide.

The tax benefits of homeownership generally allow you to afford a mortgage payment -- including taxes and insurance -- of about one-third more than your current rent payment without changing your lifestyle. So you can multiply your current rent by 1.33 to arrive at a rough estimate of a mortgage payment.

Here’s an example: If you currently pay $1,500 per month in rent, you should be able to comfortably afford a $2,000 monthly mortgage payment after factoring in the tax benefits of homeownership.

However, if you’re struggling to keep up with your rent, buy a home that will give you the same payment rather than going up to a higher monthly payment. You’ll have additional costs for homeownership that your landlord now covers, like property taxes and repairs. If there’s no room in your budget for those extras, you could become financially stressed.

Also consider whether or not you’ll itemize your deductions. If you take the standard deduction, you can’t also deduct mortgage interest payments. Talking to a tax adviser, or using a tax software program to do a “what if” tax return, can help you see your tax situation more clearly.

Related: More on Mortgages from HouseLogic

By: G.M. Filisko

G.M. Filisko is an attorney and award-winning writer who’s owned her own home for more than 20 years. A frequent contributor to many national publications including Bankrate.com, REALTOR® Magazine, and the American Bar Association Journal, she specializes in real estate, business, personal finance, and legal topics.

3 Reasons Millennials Are Driving the Housing Market

This week’s economic news was a repeat of the positive trends I’ve highlighted lately, so rather than repetitive reporting, I wanted to share a few insights.

I recently presented at the National Association of REALTORS® conference on the topic of millennials and home buying. Here’s my key takeaway:

I’m bullish about the housing market—in part, because I’m bullish about millennials.

That’s because this generation of people, born between 1981 and 2000, is our largest—made up of approximately 90 million people.

The narrative of millennials not forming households and not buying homes is stale and overplayed.

In fact, they’re just getting started, and their sheer size will drive activity in housing for decades. Here’s why.

1. Millennials Are Moving On Up

Today, millennials head up about 20 million households in America.

That number is small relative to the number of people in this generational grouping, but that’s more a reflection of their age—the median age of a millennial today is 23—and initial economic circumstance.

It doesn’t reflect any true shift in attitude regarding their desire to succeed or the value they place on independence and home ownership.

In fact, this summer alone, millennials made up nearly 30% of buyers, and they represented the largest cohort of serious shoppers.

Think millennials don’t already own homes? An estimated 14% of sellers this year were millennials.

2. Millennials Are Starting Families

So what’s driving millennials to shop and buy homes? Quite simply, life.

A whopping 86% of millennial home shoppers indicated they were buying now because of a change in their household size and composition—which includes marriage, having children or planning to start a family.

This “growing household” trigger was much higher for millennials than for any other type of home shoppers. Likewise, millennials were way more likely to say that a stable or improving income triggered them to shop.

And that’s the most encouraging sign that circumstances are improving in the right way for millennials. They started entering the job market out of college at the wrong time and suffered the most from an unemployment perspective.

But that scenario has changed dramatically in the last two years. Their unemployment rate hovers close to the same level as the general population. And this year, millennials are experiencing 60% better job growth than the country as a whole—during a banner year of job creation.

Going forward, job creation favors millennials. Economic opportunity and gains are leading them to form households and buy homes.

3. Cost of Education Will Pay Off

One cause often cited as the reason millennials are holding back from buying is the rise instudent debt. It’s true that a larger portion of students are carrying debt, and the amount of debt has risen—but that debt is an investment as well.

How so? Because of their desire for higher education, millennials are the most educated generation.

Long-term, this should be great for their economic opportunities.

Short-term, 70% of student loan borrowers owe less than $25,000. That number is manageable as employment and income opportunities improve.

Millennials are young and just getting started. Their education, diversity, tech savvy and desire to succeed will be vital to the economic success of the United States.

Right now, credit access and affordability are challenges to their ability to buy a home. That’s why you see a wide range of millennial homeownership rates in U.S. markets, from 23% in expensive Los Angeles to 56% in affordable Grand Rapids, MI.

Yet even in L.A., there are enough millennials with incomes. The L.A. market ranks sixth nationwide for the number of most millennial home-owning households.

A New Economic Force

We’re on the cusp of seeing the impact millennials will have. They should represent two-thirds of all household formations over the next five years. Job creation will favor them. Their economic opportunities are strong. And they’re planning to start families, which increases the desire to purchase a home.

That’s why we see record numbers of millennials educating themselves on home buying, mortgage qualification and local housing conditions. Collectively, they will drive housing trends for at least the next 20 years.

So move over, baby boomers—there’s a new economic force in town

8 Benefits of Buying a House at Year’s End

Summer may be real estate’s busy season, but winter offers great opportunities for buying a house, especially for renters looking to become homeowners, growing families trading up to larger houses and baby boomers seeking homes to fit their evolving lifestyles.

Generally speaking, your housing choices during the late fall are still healthy. October and November are great months to go house hunting. December is usually sparse, market-wise, but if that fits your timeline, you could luck out.

The benefits to buying a house at the end of the year include the following:

1. Tax savings

If you close by December 31, you can deduct mortgage interest, property taxes, points on your loan and interest costs. These deductions are significant, especially in the early years of your loan when you’re paying off a lot of interest.

2. Motivated sellers

Many sellers want to enjoy tax savings on the next home they purchase. They may accept lower bids in order to meet Uncle Sam’s deadlines. However, if you’re in a strong seller’s market, you’ll want to be conservative and heed advice from your real estate professional.

3. Builder incentives

If you’re buying a house that is brand new, there’s a good chance builders may push to close the books on their year—and meet quotas. They may offer upgrades or little extrasto sell houses before the calendar turns.

4. Available movers

Many moving companies are booked six weeks or more in advance during the busy summer months. In the fall and winter, it’s normally easier to secure the services of amoving company or rental equipment on shorter notice.

5. Paying toward something you own

If you’re renting, your monthly check goes toward something that will last you a month: You’ll never see any return on that money. When you buy a house, your monthly mortgage payment goes toward an investment—and ultimately a roof that’s yours.

6. Consistent payments

Landlords can increase your rent. Once you secure a mortgage, you can rely on consistent payments if you have a fixed-rate loan.

7. Freedom to renovate

Modernize your kitchen, paint your home’s exterior neon orange, change your fixtures orreplace your carpeting; whatever inspires you, no one can tell you, “No!”

8. Gaining equity

In the beginning, most of your payment goes toward interest. But gradually more will go toward paying off your principal, meaning you build up equity—or savings—in your home. Another factor in equity is appreciation: As home values rise, so does your rate of equity.

Updated from an earlier version by Michele Dawson.