Fannie Mae-No Politics (FNMA)

[clarencebeaks21]

Yeah you’re right the GSEs are not taking on more than their statutory 80 max. That hasn’t changed. As always, PMI stands in first loss position.

One can also favorably compare the 1% programs to FnF’s state housing finance agency (HFA) programs which allow a 0% borrower down payment provided the 3% comes from a bona fide government nonprofit (often a state bond or community second); and with HFAs the FICO likewise has been permitted to go under 680 —with an automated approval. So again the enterprises have decades of experience with these kinds of layered risk programs.

What stands out to me about the 1% programs is two things:

One, there is the ubiquitous ‘profit motive’ incentive that nonprofits do not have.

Two, Rocket’s program somehow can afford both the 2% and *also covers the PMI*, and Rocket’s website says the PMI cost is *not* passed along to the borrower. To me that’s fascinating (!) because how can the lender afford it? My guess is they negotiated a discounted single-pay execution with one or more of the MI companies. But even so, this seems to be a true pilot scenario as I can’t recall an analogous PMI-free feature in the market going back 25 years.

We’ll have to wait and see how well these loans perform over a year or two, and they started around 3/2023 so it’s still very early. I don’t disagree with you. There’s no FnF giveaway. There are always unknowns in the layering of incentive & risks at the leading edge of product innovation. That’s what this is.