At first glance Fannie Mae's "Keys to Recovery" plan seams too good to be true. It is. One provision touts itself as a rescue effort designed to help borrowers underwater on their mortgages--with loans up to 120% of the current value of the home in fact. But wait, there's more. The existing loan has to already be a Fannie Mae loan. Well, how many people with prime, conventional financing can do better by refinancing now? Not many. Those who could really improve their positions, meaning people in non-traditional ARMs with negative amortization, for example, or subprime rates, can't get a Fannie Mae rescue. Because Fannie is a private company, responsible to its shareholders. And it would be irresponsible to refinance loans up to 120% of the value of the home.
So "Keys" amounts to little more than a publicity stunt. Very few will be helped by this effort. Stay tuned.
4 Responses to "Bad Credit? Fannie Mae Is Not Handing You the "Keys""
Alan,
It's HUD that is doing away with down payment assistance. Fannie Mae does not allow it. And the reason is that the assistance was coming from the builders / sellers through community home buyer programs. So what you have is a seller who inflates the true price of the home and kicks back that extra to a community agency. The agency then "gifts" the down payment to the buyer.
The lender ends up making a very high-risk loan on a home that's probably not worth the selling price to a marginal borrower with no investment of his/her own in the property. And when HUD discovered that these loans were far more likely to go into default than loans to people who came up with just 2% of the price, the agency wanted to stop them.
Because for the first time in history, FHA will be in the red, and that means taxpayers will likely be tapped. Since you are probably a taxpayer, and maybe a homeowner too, you probably don't want to have to watch your home value go down because your neighbor who got this assistance blew off the mortgage. You probably don't want your taxes to go to home sellers who profit from this program. Assistance is okay but I think that when the house value goes up the money should have to be paid back. And it should NEVER come from the seller, realtor, lender, or anyone who profits from the sale.
Mary,
Fannie Mae is a government-sponsored enterprise but it's also a private corporation. So what might be good for borrowers is probably not so good for stockholders. FHA is government-administered so it can be more lined up with its borrowers' interests. The downside is that FHA "stockholders" are taxpayers. So we all pay one way or another. Mortgage borrowers really owe it to themselves to look after their own interests. No one else will do it as well.
They are not only NOT handing you the keys, the down payment assistance has been done away with too. I guess they had to come up with a good publicity stunt to cover up that nasty little secret.
Wow, that's terrible. It sounded so promising.