The end is near for an increasingly popular program in which lenders help borrowers obtain a “Home Possible” 3 percent down payment loan from Freddie Mac by putting up 2 percent of the purchase price, leaving the borrower to come up with only the remaining 1 percent.
Starting in November, lenders will no longer be able to put up 2 percent, according to a directive Freddie Mac released last week. Instead, borrowers either have to come up with the 3 percent themselves or get help from other sources, such as an employer-assisted housing grant, gift funds from family, or a grant or second loan from a nonprofit or public agency. Lenders can still provide help with the down payment, but not for the 3 percent down program; the borrower has to put up at least 3 percent and the lender can contribute an amount on top of that. “The originating lender will be permitted [to contribute] only after a contribution of at least 3 percent of value,” Freddie Mac says in its
July 26 directive.
Analysts with the National Association of REALTORS® say the program is well-intentioned, but some lenders were charging higher rates to finance the 2 percent gift. “From a public policy standpoint, this wasn’t a true gift, because borrowers were paying higher interest rates,” the NAR analysts say. “You don’t want to be Freddie Mac, promoting this program when, in reality, borrowers are paying more.”
Fannie Mae has a similar program, but it prohibits lenders from charging higher interest rates to pay for the grant. Both Freddie Mac and Fannie Mae launched their 3 percent down programs in 2014. The programs were intended to help make homeownership more affordable for moderate-income households who can afford monthly mortgage payments but have trouble coming up with a down payment.
—Robert Freedman, REALTOR® Magazine
