Housing regulator releases 3 percent down payment guidelines

A top housing regulator on Monday moved along with plans to allow mortgage giants Fannie Mae and Freddie Mac to back loans with down payments as low as 3 percent.  

Federal Housing Finance Agency Director Mel Watt said that part of his agency’s aim to improve access to credit included steps to mitigate risk on the broader swath of loans it will guarantee. 

{mosads}He said Fannie and Freddie will use their automated underwriting systems, which include “compensating factors to evaluate a borrower’s creditworthiness.”  

Watt said the plan also includes homeownership counseling aimed at improving borrower performance.  

“These underwriting guidelines provide a responsible approach to improving access to credit while ensuring safe and sound lending practices,” he said. 

The new guidelines lower the requirement from 5 percent. 

The first of several expected rules coming out in the next couple of months. 

Watt had promised during a Senate Banking Committee hearing last month that the down payment guidelines would be released in early December. 

He tried to quell lawmakers concerns about opening up Fannie and Freddie to more risk amid steady financial performance. 

During that hearing he said that he had a “high degree of certainty” that standards for borrowers will be maintained.

He also argued that while the amount of a down payment “is not the most reliable indicator of whether a borrower will repay their loan.”

“FHFA will monitor the ongoing performance of these loans,” Watt said Monday. 

Rules on guarantee fees are expected to be released early next year.  

Fannie and Freddie needed nearly $190 billion to stay afloat after their 2008 government takeover.