Freddie Mac Limits Lender Gifts and Grants, Reigning in Low Down Payment Mortgage Options

Freddie Mac recently announced that, beginning November 1, 2017, it will no longer permit mortgage lenders to contribute gifts or grants to assist borrowers in reaching the minimum 3% down payment requirement under its Home Possible Mortgages program.

The revised policy will require borrowers to contribute at least 3% of the value of the home from personal funds or other eligible sources, such as gifts from relatives.  Under the new policy, sellers as originating lenders are permitted to give gifts or grants only after the borrower has contributed the minimum 3% down payment.

Since Fannie Mae and Freddie Mac first rolled out 3% down mortgage programs in 2014, lenders have offered increasingly competitive mortgage offerings.  In recent years, lenders began offering mortgages to borrowers with only 1% down, typically by “granting” the remaining 2% of the down payment required.  Some lenders went so far as to offer a 0% down mortgage, contributing grants of up to 3% of the home’s sale price. To support the fast-growing mortgage option, some lenders have set heightened borrower credit score requirements to account for the increased risk, or less “skin in the game” by borrowers.  Other lenders, however, simply recoup gifts or grants over time through “premium” pricing structures.

Responding to the concerns of the Federal Housing Finance Agency, the Freddie Mac policy announcement states that, beginning November 1, 2017, gifts or grants from a seller cannot be funded through the mortgage transaction, such as through premium pricing arrangements.  Specifically, gifts and grants must not be funded by differential pricing in interest rates, discount points, or fees for individual loans or across the Home Possible offering.