As the spring home-buying season struggles to lift off, people point to tight credit as one reason to blame, with Danny Gardner (pictured above), Freddie Mac vice president of affordable lending and access to credit, weighing in on the discussion at the Mortgage Bankers Association Secondary conference in New York City.

Freddie Mac launched its Home Possible Advantage program featuring its 3% down payment option back in December in an attempt to open the credit box for borrowers wanting to jump into the housing market.

However, the market is not quite ready to jump on board.

“I really feel like we have gone out and broadened our product opportunity. It really is delivering the impact that we hoped it would even in terms of accessing lower FICO scores etcetera,” Gardner said.

However, despite this effort, he explained that there are still many institutions out there that take our products and overlay them with their own terms.

“This is where a lot of tightening happens,” he said.

Gardner said that if you think of the reasons behind why lenders implement overlays, it isn’t always due to the fact that they worry about defaulting since they actually don’t take the credit risk.

But Gardner said there are other reasons why they don’t want to go deeper.

  1. The manufacturing process is very difficult right now. There’s a lot of regulation that they’ve had to absorb, so by dealing with more complex types of situations, it adds more costs to the transactions. And they’re really trying to find a steady state of efficiency.
  2. Once they take those loans on book, even though they transfer the credit risk, they’ve got servicing. If you have a lot of delinquencies in your servicing, you not only have the economic challenge, but you have the compliance challenge and potential reputational challenge.

“Everyone is wading back into these waters very carefully,” he said.

Moving forward, Gardner said Freddie is doing some testing to see what expansions could work for the product to help components of the product.

And as far as the number one misconception holding lenders back on jumping on the low down-payment train, Here’s what Gardner said:

“The number one misconception is that FHA is the premier product for the low-down payment customer. We really believe that we have options versus FHA and that we have some terms within our products that are more favorable to consumers. So when loan officers and other practitioners are putting products before a customer, they should really take a good look at our Home Possible Advantage product,” he said.

Rohit Gupta, president and CEO of Genworth, touched on this in another interview during MBA Secondary, saying that there is a talk surrounding access to credit at the conference and how it can be expanded.

Gupta is positive on credit expanding in the future explaining that a lot of lenders held back on low down-payment products to begin with and are just now starting to move forward.