Quicken Loans has joined forces with Freddie Mac to offer low-down-payment mortgages and other services to some underserved borrowers.
The partnership was announced at the Mortgage Bankers Association’s 102nd Annual Convention and Expo, held this week in San Diego. It expands upon Freddie Mac’s existing Home Possible and Home Possible Advantage programs, which allows eligible borrowers to finance homes with down payments of as low as 3 percent.
According to Brad German, director of public relations for Freddie Mac, Quicken already offers Home Possible and Home Possible Advantage mortgages.
Formalizing the companies’ existing relationship is intended to extend mortgage credit to some currently underserved emerging markets, including millennials, first-time homebuyers and middle-class borrowers, German said.
“There will be some tweaking to those products and to mortgage insurance to make homebuying more affordable to borrowers,” German said. “The hope is to reveal more important and responsible ways to reach parts of the market that currently are not being served.”
Freddie Mac entered into the pact with Quicken because “they are a leader in offering this kind of mortgage product, and their service level is very strong,” German said. “They do a lot to test and experiment with different approaches to emerging markets, and we have a lot of confidence in the support they would provide.”
The partners will also offer homebuyer education.
“Homebuyer demographics will continue to significantly shift in upcoming years, and mortgage programs must evolve to serve the needs of groups like first-time buyers and minority groups,” said Quicken CEO Bill Emerson. “This partnership will create programs that will open the door of homeownership to many of America’s families.”
The partnership comes at a time that Quicken is suing the federal government for allegedly trying to strong-arm it into a hefty settlement over its handling of FHA-backed mortgages. The Department of Justice filed its own lawsuit a week later, accusing the lender of submitting insurance claims for hundreds of improperly underwritten FHA-insured loans over a period of four years. Both suits are still pending.
Quicken is one of the largest FHA lenders in the country, with the lowest FHA default rate. FHA loans require a 3.5-percent down payment.
While many mortgage industry analysts question low-down-payment mortgage products, considering them partly responsible for the most recent housing market crash, German said, “we are going to be taking the same prudent measures to minimize exposure.”
“The Home Possible and Home Possible Advantage programs are a proven, tested model,” he said.
Discussing the programs in a commentary earlier this year, Dave Lowman, Freddie Mac’s Executive Vice President of Single-Family Business, said they “include responsible credit and underwriting standards to keep risks in check for borrowers, taxpayers and Freddie Mac.”
“In order to limit default risk, Home Possible Advantage is available as a fixed-rate mortgage for primary residences only; this ensures that principal and interest payments stay the same, and borrowers won’t worry about future mortgage payment shock,” Lowman stated.
“Home Possible Advantage also requires full documentation, and the right balance of credit and debt-to-income ratios to ensure a borrower can comfortably manage homeownership. First-time homebuyers must complete pre-purchase housing counseling, like Freddie Mac’s CreditSmart, which our research shows can reduce delinquency risk by about 29 percent.”
Editor’s note: This story has been updated.