Freddie Mac says the company’s Home Possible Advantage mortgage, introduced in March, is a very different product than similar loans that were common before the housing crisis.
The mortgage, which permits a reduced down payment of as little as 3 percent and allows the funds to be a gift from family or employers or a grant from a government agency, has raised concerns that mortgage lending may be returning to some of the risky lending practices that led to the housing crisis.
Low down payments and the resulting low levels of equity left many who bought homes in the middle part of the last decade to sink rapidly underwater when home prices declined, especially in cases were home values were based on what Freddie Mac calls “overly optimistic appraisals.”
A report adds, however, this was not the only or even a primary factor that increased mortgage risk in those days. In many cases it was layered risk, i.e. several features which, when combined with low down payments, multiplied the risk.
Information from Mortgage News Daily
