Fannie Mae and Freddie Mac announced that they were diving back into 3% down payment loans with private mortgage insurance. However, while this might bode well for borrowers, not everyone in the industry has jumped on board.
This is just one area that the government-sponsored enterprises are trying to increase demand in mortgage lending.
Eric Klopfer, MGIC vice president of corporate strategy, wrote an article on “3 Reasons Why Restoring 3% Down Loans Makes Sense,” noting that at first, many of them at MGIC were a bit surprised regarding the somewhat pessimistic reaction or apprehension to the news.
"What perhaps makes those reactions even more confusing is the simple fact that similar products have long been available through government programs such as the FHA," Klopfer said.
Here are Klopfer’s three arguments for a 3% down loan product:
1. Options for borrowers.
Restoring a conventional 3% down loan option featuring private mortgage insurance offered by Fannie Mae and Freddie Mac, would give borrowers additional – lower cost – alternatives to consider when shopping for the right mortgage for their individual circumstances.
2. Protects taxpayers.
When FHA insures a 3.5% down loan, the taxpayer is fully responsible for any losses. When a private mortgage insurer insures a 3% down loan, private capital is in the first loss position.
3. Prudently manage risk.
Some of the naysayers have pointed to the idea of the slippery slope they fear the reintroduction of conventional 3% down loans may cause. No lower down-payment loan is without risk, but the incremental risk generated by reducing the minimum down-payment to 3% from 5% is known and manageable.