Help From Fannie and Freddie for Foreclosed Homes
Dated: October 9, 2009
HOME buyers are not accustomed to getting much help with their mortgage financing; generally, they’re happy just to get a loan closed.
At least one group of borrowers, though, could get a break. Fannie Mae and Freddie Mac, the government-controlled companies that buy mortgages in bulk from lenders, are offering financing incentives for buyers of foreclosed homes that Fannie and Freddie own.
Home buyers have until Oct. 30 to apply to take advantage of Freddie Mac’s SmartBuy program, which began in July and offers up to 3.5 percent of a home’s sale price to help cover closing costs.
To qualify, the home must be a principal residence and must be chosen from Freddie Mac’s HomeSteps Web site for its foreclosed properties (homesteps.com/homeshoppers.htm). Loans must close by year’s end. The HomeSteps properties also include two-year warranties on major appliances and electrical, plumbing, air-conditioning and heating systems.
HomeSteps includes relatively few properties in New York City and the surrounding counties, however, in part because Freddie Mac accepts few loans greater than $417,000. Last week, for instance, the site had no homes in Manhattan and five in Westchester County, including a three-bedroom apartment in Yonkers and a four-bedroom home in South Salem, both listed for $300,000. (There were a few more homes in New Jersey and in Fairfield County, Connecticut.)
Nor does the Fannie Mae program, HomePath.com, have many foreclosed homes for sale in the greater New York region. A one-bedroom apartment on West 110th Street, selling for $378,000, was the site’s only Manhattan listing last week. (Thirteen homes were available in Nassau County, by contrast.)
The incentives for buyers in Fannie Mae’s ongoing program are even more aggressive than those offered by Freddie Mac.
Through participating lenders, Fannie will offer mortgages to buyers who make a down payment of 3 percent, and these buyers do not have to secure private mortgage insurance, or P.M.I., as they would when doing business with nearly any other lender.
A Fannie Mae spokeswoman, Amy Bonitatibus, said the company “already owns the risk” on the property. “So buyers can save a couple hundred dollars a month in insurance,” she said.
Fannie Mae will often offer closing cost assistance to buyers, so long as they negotiate for it. Unlike Freddie Mac’s, Fannie’s assistance level is not capped. Under the program, the average homeowner has received payments equivalent to 3.75 percent of the loan’s value.
Until June, Fannie Mae also offered to pay for home repairs during the borrower’s first six months in the property, up to $3,000. The company is considering whether to renew, or change, that program.
Also, in areas hit hardest by the economic downturn that have qualified for federal financing through the National Stabilization Program, which helps distressed communities, Fannie Mae may discount its foreclosed properties by up to 15 percent.
Most of Fannie Mae’s foreclosure incentives are offered to buyers who will use the property as their primary residence, or so-called public entities like Neighborhood Housing Services and other organizations that rehabilitate properties and sell them to owner-occupants.
Banks, meanwhile, have been leery of offering financing incentives on foreclosed homes. But Brad Geissen, the chief executive of Foreclosure.com, which, among other things, posts listings of foreclosed homes, said that in his discussions with banking executives, banks appear ready to offer similar programs.
“We’re starting to see banks loosen up on financing and consider a number of different incentive programs to move their inventory,” Mr. Geissen said. “I know a number of banks who are getting ready to release programs like this, between now and the end of the year.”