Executives of Fannie Mae and Freddie Mac told Congress they are finally bringing down interest rates on some "jumbo" mortgages.
Jumbo mortgages are those larger than the normal limit — currently $417,000 — on loans that can be sold to Fannie and Freddie, government-sponsored companies that provide the bulk of funding for
Fannie and Freddie said their more aggressive purchases of jumbo loans in recent weeks have brought rates down.
Hudson City Savings Bank,
The two biggest players in the home mortgage field, Fannie Mae and Freddie Mac, did precisely that on Friday.
Reversing its policy of penalizing buyers in troubled real estate markets with 5 percent higher down payments, Fannie switched to a nationally uniform policy of charging borrowers the same minimum down payments irrespective of location. A spokesman for Freddie Mac, Brad German, said his company would be "suspending" its declining markets policy indefinitely, as well.
Starting June 1, mortgage applicants who are underwritten by Fannie Mae’s automated system online will qualify for 3 percent minimum down payments, wherever the property is located. Under Fannie’s prior system, applicants buying houses in designated declining markets had to contribute 5 percent extra in upfront equity compared with borrowers in nondeclining areas.
Freddie’s policy also required 5 percent higher equity contributions up front.
That change was welcomed by national real estate and housing groups. Dick Gaylord, president of the National Association of Realtors, said the termination of a policy that "stigmatized" certain communities will "help stabilize the credit markets."
Private mortgage insurers, who provide loss protection to lenders on loans with low down payments, have virtually all adopted highly restrictive policies affecting ZIP codes or metropolitan areas they designate as distressed or declining.
Fannie Mae’s and Freddie Mac’s policy switch should open the door to some additional low-down-payment mortgages — and home sales — in local areas once tagged as declining.