Stage Set to Revive First-Time Home Buyer Market

The move by Fannie Mae and Freddie Mac this week to offer 3 percent down payment loans may reignite the first-time home buyer market.

The new loans announced by Fannie Mae and Freddie Mac will be fixed-rate mortgages for up to 30 years, available only on a primary residence. Fannie plans to begin issuing the 3 percent loans before the end of the year. Mortgage insurance payments will be required, and qualified buyers will need to complete a financial counseling program.

Freddie Mac plans to start issuing its 3 percent loans to low- and moderate-income borrowers in March 2015. Eligible borrowers will be required to earn less than an area’s median income and will have to pay mortgage insurance and do financial counseling. Monthly payments also will have to fall under 43 percent of the borrower’s income.

Source: “More Americans to Buy Homes with 3 Percent Down,” The Associated Press (Dec. 11, 2014)

Trouble Ahead on Home Equity Loans?

Mortgage delinquencies are on the rise for home equity lines of credit that were taken out during the housing bubble and others reaching the 10-year mark, Equifax data shows.

In most cases, after these loans hit the 10-year mark, borrowers must start paying not only the interest but also the principal on these loans. For many, that could mean their monthly payments could more than triple. For example, a consumer with a $30,000 home equity line of credit with a 3.25 percent initial interest rate could see their monthly payments go from $81.25 to $293.16, according to Fitch Ratings analysts.

The number of home owners missing their payments is growing, Equifax reports. Amy Crews Cutts, the chief economist of Equifax, has called the pending increase in payments on home equity lines as a “wave of disaster.”

“More than $221 billion of these loans at the largest banks will hit this mark over the next four years, about 40 percent of the home equity lines of credit now outstanding,” Reuters reports. The delinquencies will mean banks stand to lose 90 cents on the dollar?

Analysts say that home owners who are facing a big jump in their payments may be able to refinance their main mortgage and home equity lines of credit into a new, single fixed-rate loan. Or some borrowers may find that selling their home and taking advantage of rising home prices is another way to repay their loan, analysts note.

Source: “Insight: A new wave of U.S. mortgage trouble threatens,” Reuters (Nov. 26, 2013)