Apparently Fannie Mae and Freddie Mac feel enough time has passed since the subprime mortgage crisis: The government-supported mortgage guarantors say they'll back mortgages with as little as a 3% down payment, CNN Money reports. Both agencies hope to encourage first-time homebuyers who may be having a hard time raising the current 5% minimum or the more traditional 20% down payment to pony up for a place through their programs, the AP reports. Fannie Mae will start backing the fixed-rate loans, which will apply to first-time buyers and refinances, on Dec. 13, with Freddie Mac following suit by March 23. There's a high borrowing bar, though: Buyers must purchase private mortgage insurance, or PMI; boast a credit score of at least 620; be willing to provide documentation for all income, assets, and jobs; and attend home ownership counseling sessions.
The mortgage insurance industry and supporters of low-income families are most pleased with the government initiative, especially since recent data from the National Association of Realtors shows that only 29% of home purchasers are first-time buyers—significantly below the historical 40% rate, the New York Times reports. But others are wary that the programs may again open the financial floodgates to another crisis by leaving borrowers without an ample cash cushion vulnerable to default. A Cato Institute economist tells the Times that "you're essentially underwater when you walk away from the table " after closing costs and that this "is not a situation we should be trying to get people in." Still other experts think the programs might not make much of a difference anyway, since rigid borrowing criteria and lack of demand are bigger issues than not being able to fork over a down payment.