The Federal National Mortgage Association (OTCBB: FNMA) and Federal Home Loan Mortgage Corp. (OTCBB: FMCC) are in talks over issuing home loans with as little as 3% down, potentially enticing would-be buyers and bolstering housing sector-related exchange traded funds.
Over the past week, the SPDR S&P Homebuilders ETF (NYSEArca: XHB) gained 7.0% and iShares U.S. Home Construction ETF (NYSEArca: ITB) increased 10.4%. However, year-to-date, XHB is still down 9.6% and ITB is 5.2% lower.
Currently, Fannie Mae and Freddie Mac implement a minimum 5% down payment on home loans, the Chicago Tribune reports. The change to a 3% minimum would allow creditworthy but cash-strapped consumers to acquire a new home and support a recovering housing sector. [Low Mortgage Rates Could Reinforce Homebuilder ETFs]
“Through these revised guidelines, we believe that the enterprises will be able to responsibly serve a targeted segment of creditworthy borrowers with lower down payment mortgages by taking into account compensating factors,” Mel Watt, director of the Federal Housing Finance Agency, Fannie and Freddie’s overseer, said at the Mortgage Bankers Association’s annual convention. “It is yet another much-needed piece to the broader access-to-credit puzzle.”
Loan growth remains slow due to Fannie and Freddie’s ability to force lenders to repurchase bad loans. However, the revised guidelines could help lenders make a more informed decision to prospective new homeowners.
“I hope our actions provide sufficient certainty to … more aggressively make responsible loans available to creditworthy borrowers,” Watt added.