Fannie Mae, Freddie Mac Offer No Downpayment Home Loans

Washington, D.C. (AHN) - Legislation that required Fannie Mae and Freddie Mac to finance a federal home-loan insurance has made available home with zero downpayment and borrowings of up to 105 percent of the value of a house to be purchased.

The two largest mortgage firms are aware that their mandates to uphold prudent lending standards and make owning a house more within the reach of the average American, could be conflicting.

Freddie Mac's Home Possible mortgages allows buyers with almost no credit or savings such as teachers, firemen and members of the military to own homes, but this may lead only to more foreclosure incidents in the future.

The second largest mortgage lender recommends borrowers under such a scheme to go through a homeownership education program which has help curb delinquency rates by 34 percent. Over 100 percent borrowing are permitted if the borrower could piggyback the loan with special lenders like government housing agencies, non-profit lenders and employers.

A similar requirement is mandated by Fannie Mae when lending beyond 97 percent of the price. The second lender may even forgive the piggyback loan if the homeowner would agree to stay in the home for five years, said Gwen Muse-Evan, vice president of credit policy and controls of Fannie Mae.

Staying in their units for at least five years helps stabilize the housing market, Fannie Mae said.

The two firms jointly account for about 50 percent of the $12 trillion outstanding home loans in the U.S. Both had reported quarterly losses for the past three consecutive quarters brought by the subprime mortgage crisis. As a result, their stocks have tumbled down, Freddie Mac by 64 percent in the past 12 months, down to $23.96 in the New York Stock Exchange composite trading, while Fannie Mae similarly dipped by 60 percent the past year, now trading at $25.71.