Why Fannie's 3% Down Payment Mortgages Have Been Slow to Take Off

Despite being introduced to the market with great fanfare, Fannie Mae's 3% down payment mortgage offering has yet to gain much traction with lenders and consumers.

Fannie Mae acquired 9,000 mortgages with loan-to-value ratios between 95.01% to 97% from 600 lenders during the first half of 2015, representing less than 1% of all loans Fannie purchased during that period, according to regulatory filings.

"We have seen some pickup there but overall, it has been pretty modest," Fannie Mae CEO Timothy Mayopoulos said during a conference call Thursday with reporters.

Mayopoulos stressed that Fannie rolled out its 97% loan-to-value product in mid-December to encourage borrowers to take advantage of low interest rates to refinance or buy a home. He added that he suspects borrowers are still learning about the government-sponsored enterprises' new low-down payment products.

"One of the reasons we came out with the 97% LTV product was to try and send a clear message to the market is that we are open for business for folks who need access to credit," he said.

The new low-down payment products have so far only received tepid interest at Freddie Mac. However, their availability serves a dual purpose in encouraging lenders to loosen up on their proprietary credit overlays.

"We are interested in having them deliver to the full scope of our credit box without any overlays on their part," Mayopoulos said. "We have had some success with that, but it has not been uniform across the industry."

Around the same time that the GSEs rolled out their low-down payment products, the Federal Housing Administration announced a 50-basis-point cut to its annual mortgage insurance premium that took effect in late January — a move that's resulted in a significant increase in volume and has helped the FHA chart a path toward recovery and improved future performance.

Fannie Mae reported net income of $4.6 billion for the second quarter of 2015, up 27% from $3.67 billion one year ago, and up 46% from $1.89 billion in the first quarter of 2015. As usual, the company expects to hand over most of its profits to the U.S. Treasury under its conservatorship agreement. Fannie will pay $4.4 billion in dividends to Treasury in September.

In addition, Fannie Mae acquired $128.1 billion in single-family mortgages in the second quarter, up from $85.2 billion one year ago and $113.2 billion in the first quarter of 2015.

Purchase-mortgage volume accounted for 40.3% of total volume, down from 54.4% a year ago, but up from 36.8% in the first quarter.

Fannie Mae's serious delinquency rate has fallen nearly 40 basis points in the past year, and now sits at 1.66% as of June 30. Two years ago, the percentage of loans 90 days or more past due was 2.77%.

During the first half of 2015, Fannie continued to see a slowdown in foreclosures and a reduction in its real estate owned inventory. The GSE acquired 44,160 single-family properties through foreclosure and ended the period with an inventory of 68,717 REO properties.

During the first half of 2014, Fannie acquired 63,570 REO and ended the period with an inventory of 96,800 REO properties.

Fannie Mae lenders have already originated $25 billion in multifamily loans this year and company executives are monitoring the situation to ensure they don't exceed a $30 billion cap imposed by the Federal Housing Finance Agency. However, Mayopoulos pointed out that not all multifamily loans count against the $30 billion cap. "I don't believe the cap will present any constraints on liquidity in the multifamily business," he said.