WASHINGTON–A new report suggest that low down payment programs created by Fannie Mae and Freddie Mac are causing problems in FHA lending.
According to Black Knight's Mortgage Monitor report, low-down-payment originations, which they define as loans with down payments below 10%, currently account for nearly 40% of all purchase originations and 1.5 million borrowers have closed on such loans in the last 12 months, a seven-year high, the analysis found.
The FHA will loan 97% of the purchase price with mortgage insurance, while the VA will guarantee up to a LTV ratio of 100% for an eligible borrower. In 2014, Fannie and Freddie reintroduced a program that would allow as little as 3% down, but borrowers must also carry private mortgage insurance.
According to Black Knight, the increase in low-down-payment loans is primarily a function of the overall growth in purchase loan originations, but such loans declined as a percentage of originations for four straight years. They have now seen their share increase for the last 18 months, Black Knight said.