Fannie Mae lending program easesbuyers' paths to foreclosed houses

WASHINGTON — For buyers who fit the profile — typically with little cash on hand or looking for a small-scale investment deal on a foreclosed house — a little-publicized national lending program could be just the ticket.

Here's what it offers:

• Minimal down payments — 3 percent for buyers who plan to live in the house, 10 percent for investors. Most of the down payment can come from documented gifts from relatives or others with no direct connection to the transaction.

• No requirement for an appraisal on the property unless the buyer is applying for additional money to renovate the house.

• Generous “seller contribution” limits of up to 6 percent of the price, effectively reducing the cash needed for closing costs.

• No requirement for mortgage insurance coverage.

• Credit-score minimum of 660, compared with the 700-plus many lenders now demand for conventional loans with favorable terms.

• Maximum loan amounts tied to standard conventional loan limits: $729,750 in the highest-cost markets, $625,500 in others, and $417,000 everywhere else.

Who is offering such come-ons an era of stringent underwriting requirements?

It's Fannie Mae, the mortgage investment giant that got into deep trouble when the housing bubble burst and is now bleeding red ink under federal conservatorship.

Fannie is saddled with tens of thousands of foreclosed houses. It needs to sell them, is willing to finance their transfer to new owners, and has come up with a program it calls HomePath, which it is offering through mortgage brokers and a network of 50 lenders.

The program is restricted to Fannie Mae foreclosure holdings; the listings can be viewed state by state at www.HomePath.com.

Participating real-estate brokers are listed on the same site; Fannie Mae will entertain only offers that come through those brokers, not directly from consumers.

Most properties are open to bids from owner-occupant purchasers and investors, but some designated “First Look” are reserved for bids from owner-occupants during the initial 15 days after listing.

The program offers two main options: mortgage financing to purchase the house in its current condition and financing in which Fannie lends additional amounts for what it describes as “light to moderate” fix-ups, such as roof repair or replacement of a heating and air-conditioning system.

The maximum rehab amount is $30,000 or 20 percent of the projected value of the renovated house.

Interest rates on both options are slightly higher than prevailing conventional or FHA-insured loan rates.

Does HomePath have potential downsides? Absolutely.

Although Fannie Mae says it owns foreclosed houses in a wide variety of neighborhoods, mortgage brokers say they are more likely to be found in lower-to-moderate-priced areas that took deeper hits when the housing market unraveled.

Buyers looking for pristine properties with zero defects might not find what they want on the HomePath listing board.