Fannie Mae, the nation’s largest seller of mortgage-backed securities, has announced that it will begin buying mortgages with a loan-to-value ratio of up to 97 percent in a bold attempt to break down what the government-sponsored entity calls the “primary barrier to homeownership.”

This means that, theoretically, first-time homebuyers can put as little as 3 percent down when buying a home.

The change, effective immediately, will expand access to credit for otherwise-qualified first-time homebuyers who may not have the resources for a larger down payment, Fannie Mae stated. 

“Our goal is to help additional qualified borrowers gain access to mortgages,” said Andrew Bon Salle, an executive vice president for Fannie Mae. “This option alone will not solve all the challenges around access to credit. Our new 97 percent loan-to-value offering is simply one way we are working to remove barriers for creditworthy borrowers to get a mortgage. We are confident that these loans can be good business for lenders, safe and sound for Fannie Mae and an affordable, responsible option for qualified borrowers.”

The loans still need to meet Fannie Mae’s usual eligibility requirements including income verification and risk management standards, and will still require private mortgage insurance or other risk sharing.

It is still unclear if the changes will actually help a large swath of new borrowers buy homes, with some in the mortgage industry saying it won't because lenders will still require high credit scores and other stringent criteria that will block out many potential borrowers.

In addition, eligible homeowners who wish to refinance their Fannie Mae-owned mortgage but do not qualify under the Home Affordable Refinance Program (HARP) can refinance their loan up to the 97 percent loan-to-value level under a limited cash-out option.

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