Tom Kelly: End of HomePath signals healthy housing market

The country’s biggest provider of mortgage money is eliminating its popular financing plan for foreclosed properties, another sign the housing market has returned to healthy and hearty.

The Fannie Mae HomePath program will terminate on Monday. Not only did it provide attractive financing for owner-occupants, but it also included a financing option for second home buyers and investors.

The HomePath financing program offers 3 percent down-payment options for owner-residents, 10 percent down payments for second home buyers and 15 percent down-payment plans for investors on Fannie Mae REO properties. Participating borrowers usually need a 660 credit score and they are required to borrow at least $50,000. Down payment (at least 3 percent) can be funded by savings, employer, gift, grant, or a loan from a nonprofit organization, state or local government.

Other components that make this program attractive are no appraisal and no private mortgage insurance (PMI). All of this affords a very quick closing time, typically about two weeks.

Eliminating those two components is huge. Accurate and timely appraisals have been a hotly contested topic in the housing industry over the past few years as many neighborhoods have dipped (sometimes yo-yoed) in value. Mortgage insurance, typically required on loans with less than a 20 percent down payment, can be costly. Not having to pay mortgage insurance would equal an approximate .75 savings on an interest rate (4.5 percent instead of 5.25 percent).

For those considering a condominium purchase, HomePath has no condo review requirement. This saves time and money, usually spent working with a homeowners association for Fannie Mae required documentation.

Also coming to a halt will be Fannie Mae’s temporary closing cost assistance to Washington state consumers who buy a Fannie Mae foreclosure as a primary residence.

The offer applies to owner-occupant buyers of its FirstLook homes, a program where buyers get 20 days to purchase homes ahead of competition from investors. Qualified buyers were eligible to get up to 3.5 percent of the final sales price covered in closing costs.

Some buyers used the savings from the closing cost assistance to buy down their interest rate through upfront fees, which results in additional savings over time.

While home shoppers may not have found the ideal residence, getaway or investment property on Fannie Mae’s Real Estate Owned list, many were pleasantly surprised with the possibilities. According to real estate salespersons, most of the properties are in marketable condition.

The HomePath program has no declining market restriction. Given the declining values in many markets, some conventional mortgages now come with a provision that allows the lender to reduce the loan amount if the home declines in value during a specific time period. The HomePath mortgage is limited only by the size of the original down payment.

The HomePath program also includes a renovation mortgage component similar to FHA’s 203K loan. Both provide owner-occupants with the cash to purchase and rehabilitate a property all in one loan.

While many lenders had taken a dim view of investors because of the horror stories of those who simply look for any method to suck the equity out of properties they do not occupy, lenders also realized that investors played a critical role in getting run-down properties back in marketable condition.

The investor component was reminiscent of Fannie Mae’s Houston operation from 1986-1988 when one-third of all Fannie Mae’s national REO inventory was situated in the five counties surrounding the nation’s fourth-largest city. The Houston experience, in the sheer volume of localized foreclosures and the severity of the absolute value decline from peak to valley, rivaled the worst financial performance in U.S. history.

Remember, the final day to obtain HomePath terms is Monday. This means the home must be chosen, and all documents submitted to the lender by that date.