In the world of mortgage financing there is stuff that's seen and stuff that's not.
The government-sponsored enterprises have begun to accept loans with 3% down, but they're not just any old 3% loan. The GSEs want something more, and
Combine the 3% down payment and the 18% insurance requirement, and Fannie Mae and Freddie Mac are following long-time industry standards by requiring at least a 20% cushion in case something goes wrong.
And while mortgage insurance is a burden, the bigger obstacle to focus on, according to a RealtyTrac
In 92% of the counties analyzed, payments on a median-priced home required less than 43% of median household income, which is the maximum debt-to-income ratio allowed for a qualified mortgage by the
Add in the typical student loan debt and car payment, and less than half — 48% — of U.S. housing markets are affordable for median-income earners using the 43% DTI.
Additionally, the standards for 3% loans is hardly straight-forward, meaning they are not for everyone.
For instance,
Over at Freddie Mac,
The 3% loans are also unlikely to have much impact on refinancing. With less down — really, with less equity for refinancing — there should be more refinancing demand and some additional refinancing activity will be attributed to the new products. Refinancing demand is largely a byproduct of interest rates and lower monthly costs. For most homeowners, that financial ship has sailed.
Most eligible borrowers have already refinanced into lower rates and an estimated 80% of outstanding loans have a mortgage rate of 4.5% and lower,
Loans with less down are certainly attractive and unquestionably will lure some additional borrowers into the housing market. It's a help, but just a smidgeon of help. The new programs are being introduced at a time when mortgage rates are low and prices are generally attractive, but such enticements have not resulted in soaring sales, something unlikely to happen until the economy picks up, incomes grow and job stability becomes more certain.
If, as widely predicted, mortgage rates and home prices rise later this year or early in 2016, the benefits of a lower down payment will be offset by higher costs. For many buyers, the trade won't work.
Brian Mushaney is Executive Vice President of Data Solutions at RealtyTrac.