Freddie Mac introduced its 3% down mortgage product back in December 2014 to help more first-homebuyers and other qualified borrowers jump into the market.
After two years and a significant push from Freddie Mac to make lenders comfortable, it still barely makes a dent in Freddie Mac’s first-time homebuyer portfolio.
But it’s only the beginning.
In an interview with HousingWire after the government-sponsored enterprise posted its second-quarter earnings, Donald Layton, Freddie Mac CEO, pointed out two key facts. First, he said that 42% of non-refinance purchase buys were to fund loans to first-time homebuyers, which is the highest level in 10 years.
He also noted that the 97% LTV product has significantly attractive characteristic for first-time homebuyers.
However, despite both factors, he said that the numbers are not large enough to be driving an increase yet.
Right now, the product's level of success is hard to judge since the GSE chooses not to disclose the information.
Layton did give some insight into how the program is doing, noting that its partnerships with Quicken Loans and Bank of America are meeting, if not exceeding, expectations.
Quicken and Freddie Mac first announced a partnership in October 2015. At the time, the details on the partnership were sparse, with the two organizations stating that the program will feature “unique, co-developed products to meet the needs of emerging markets, including Millennials, first-time homebuyers and middle-class borrowers.”
While Quicken’s product falls under Freddie Mac’s Home Possible Advantage program, the 3% down that launched in December 2014, it only requires a borrower to put 1% down. In order to make this possible, Quicken said it gives borrowers who qualify a 2% grant, thus making a 3% down.
Bank of America, on the other hand, announced an affordable mortgage program in February that offers consumers the option of putting as little as 3% down and requires no mortgage insurance.
Bank of America announced a partnership with Self-Help Ventures Fund and Freddie Mac for its new "Affordable Loan Solution" mortgage, a conforming loan that provides low- and moderate-income homebuyers access to a responsible lending product with counseling at affordable entry prices.
Until Freddie decides to disclose data on how the product is performing, the market will need to look toward the outcomes of lenders like Quicken Loans and Bank of America that are using Freddie’s 97%.
As Mat Ishbia, CEO of United Wholesale Mortgage, recently stated, 3% down mortgages are going to be the new normal, especially for Millennials.
Ishbia explained, “I would put 3% or 5% down and keep that extra 15% in your pocket for when you buy furniture, when your car breaks down or when something happens to your new house. Basically, putting 20% down is like digging a hole in the backyard and burying the money.”
For now, Layton simply quantified the success of the 3% down as “rapidly growing in demand.”