Freddie Mac to Require More Equity in Purchased Loans


Freddie Mac said last week in a bulletin to lenders that performance of loans with loan-to-value ratios of less than 5 percent has been “unacceptable,” and starting June 1, the GSE will no longer purchase them.

“In our continuing effort to support responsible lending and sustainable homeownership, we are reducing the maximum loan-to-value (LTV), total LTV (TLV) and Home Equity Line of Credit TLTV (HTLTV) ratio requirements to 95 percent for all conventional mortgages we purchase,” the memo read.
Relief Refinance Mortgages are excluded from the new requirements.
The idea that borrowers with more equity in their homes are less likely to default has been a popular subject lately. A study released in February by the Federal Reserve said homeowners with equity in their homes have more flexibility when attempting to sell their homes in troubled times.
Freddie Mac currently accepts loans with an LTV of 97 percent or less, but acknowledges purchases of loans of this type have been “minimal in recent years.”

The bottom line here is that if the Freddie Mac will not purchase loans with less than 95% LTV, the folks writing mortgages will be forced to raise the minimum down payment to 5% so the loan will be marketable.  Get ready.  This will mean that home buyers will need a little extra cash in their pocket when shopping for a home.