Risky behavior? Fannie Mae, Freddie Mac to offer 3% down payments on mortgage loans

Home prices continued to gain steam in May according to a closely-watched reading, even as mortgage rates climbed.

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WASHINGTON – A move that was originally intended to boost the real estate market is causing quite a bit of controversy.

Fannie Mae and Freddie Mac announced that they are launching mortgage programs to make it easier for borrowers to secure loans.

On Monday, the companies announced they would accept down payments as low as three percent.

However, critics say the move encourages the same type of risky behavior that caused the financial crisis in the first place.

In 2008, the government seized both companies as they neared bankruptcy because of bad mortgages they backed.

Taxpayers spent $187.5 billion to keep the companies going at the time.

This year, they finished paying back all the bailout money to the government.

According to the LA Times, the loans “reverse a trend of tighter lending standards” and “allow only fixed-rate loans on single-family homes used as a primary residence.”

Since 2011, Freddie Mac has required buyers to provide at least five percent down payments on mortgages.

“Lenders have been real concerned about these buybacks,” said Doug Lebda, CEO of LendingTree. “If problems arise with loans, the [Fannie / Freddie] guarantee often fails when lenders need it the most.”

In the past, Fannie Mae and Freddie Mac have been able to force lenders to buy back loans that have defaulted soon after they were issued, if any mistakes were made in the paperwork or if there was borrower fraud.

Under the new rules, any loans with no missed payments for 36 consecutive months after they were issued will be backed by Fannie or Freddie if they default.

The agencies will also allow two missed payments in the first 36 months without forcing borrowers into foreclosure.

While some believe the move will help first-time home buyers, other banks say they may choose not participate in the program.

The low down payment loans should help boost home buying among low-income and first-time home buyers.

Also, a Federal Reserve survey found that 45 percent of renters delayed purchasing a home because of the expense of a down payment.

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