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Housing Bubble II: The Feds Are at It Again

Posted on January 26, 2015

Uncle Sam wants to make it more affordable for Americans to buy their first home.

The recent policy changes affect government-backed home loans and could make it less costly for first-time buyers to come up with a down payment or to afford private mortgage insurance.

The changes center on the Federal Housing Administration and mortgage giants Fannie Mae and Freddie Mac.

Earlier this month, the Obama administration announced that the premium that borrowers with an FHA-backed home loan must pay for mortgage insurance will be dropped to 0.85 percent from 1.35 percent by the end of this month.

The move is estimated to save the average homebuyer $900 a year, as well as help save money for homeowners looking to refinance their mortgage.

That followed an announcement last month that Fannie Mae and Freddie Mac, which buy home loans from lenders and then package them as securities to be sold to investors, would be adopting new guidelines on down payments.

Specifically, the change would enable some borrowers to buy a home with a down payment as low as 3 percent, down from a minimum of 5 percent.

“These combined actions between the FHA, Freddie Mac and Fannie Mae are a huge signal to the market that it’s OK to lend to first-time homebuyers,” said Nela Richardson, chief economist at real estate brokerage Redfin.

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