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GSEs' low-downpayment programs have yet to make a splash

Low-downpayment loan products offered by Fannie Mae and Freddie Mac have yet to catch on, new data from Black Knight Financial Services indicates.

Borrowers have largely shunned the relatively new offerings from the government-sponsored enterprises (GSEs) that allow for a downpayment of just 3 percent of the total loan amount.

Homebuyers have instead continued to flock to the more established Federal Housing Administration (FHA) program, which allows borrowers to put down as little as 3.5 percent on an FHA-insured loan, Black Knight data for October suggests.

FHA has far more lenient credit standards. Nearly 20 percent of the FHA loans with 95 percent loan-to-value (LTV) have gone to borrowers with credit scores below 660, Black Knight said, whereas the GSEs have typically only accepted high LTV loans from borrowers with pristine credit.

But even borrowers with higher FICO credit scores who qualify for GSE-sponsored loans, and can get one at a more affordable rate than an FHA loan, have not bitten on the GSEs new offerings, said Ben Graboske, senior vice president for Black Knight’s Data & Analytics Division.

“There is a significant population of FHA borrowers that can’t qualify for the GSE product because of their FICO,” Graboske said.“To me what was particularly interesting is that there was a population of borrowers who would qualify for the GSE product that went FHA, which is a real puzzler. They pay more money for an FHA product.”  

Graboske said the data doesn’t explain why the FHA continues to dominate. However, he theorized that mortgage brokers and originators haven’t pushed the GSE products and instead favored FHA’s program. FHA cut its insurance premium earlier this year and has experienced significant gains in volumes and loan counts over last year.

“FHA has just got more people out there selling the FHA product, and the GSE product, being new, is just not on as many shelves,” Graboske said.

So far in 2015, GSE loans account for just 2.3 percent of the total volume for loans with loan-to-value ratios (LTVs) of 95 percent or higher, Black Knight said. By contrast, FHA and Veterans Affairs-backed loans account for 90.6 percent of all loans with 95 percent LTVs.

The GSEs’ 97 percent LTV programs have accounted for just 1 percent of their loan-purchase volume this year, Black Knight said.

After shunning high-LTV programs after the credit crisis, Fannie rolled out a new low-downpayment program in 2014, and Freddie followed with its own program this year. The GSEs don’t originate loans, but purchase and securitize them with the government’s backing. 


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