Assistance From Fannie and Freddie Programs for Foreclosed Homes

Home buyers are not accustomed to getting much aide with their home loan financing. In fact, they are usually happy just to get a California home loan. At least one group of borrowers, though, were offered some relief. Fannie Mae and Freddie Mac, the government-controlled companies that buy mortgages in bulk from lenders, have offered financing incentives for purchasers of defaulted homes that Fannie and Freddie own in California and across the USA. Home buyers had until Oct. 30 to apply to take advantage of Freddie Mac´s SmartBuy program, which began in July and offered up to 3.5 percent of a home´s sale price for closing costs.

Freddie Mac's program, was created on July 17, 2009. The program was designed by Freddie Mac to help home buyers with their closing cost expenses. With the program, Freddie Mac offers to pay as much as 3.5 percent or the actual closing costs, whichever is lower for owner-occupied homes. Owner occupied cash sale homes can receive up to 1 percent for closing costs through the Freddie Mac program. Investors, however, are not eligible for this program. To qualify for the mortgage relief program, the home must be a primary residence and must be processed through the foreclosed property section of Freddie Mac´s HomeSteps Web site. Also, loans must close by year´s end. As an added bonus, the HomeSteps properties also include two-year warranties on major appliances and electrical, plumbing, air-conditioning and heating systems. HomeSteps is the property sales unit of Freddie Mac and is focussed on selling homes that Freddie Mac owns. The program also includes a comprehensive two-year home warranty on HomeSteps properties. Although the closing cost offer has already expired, the warranty is ongoing.

Fannie Mae's program was more aggressive than Freddie Mac with the incentives they offered. Through participating lenders, Fannie offered home mortgages to buyers offering a down payment of 3 percent, and these buyers did not have to secure private mortgage insurance. Fannie Mae also offered closing cost assistance to buyers, as long as they negotiate for it. But, unlike Freddie Mac´s, there was no cap to the assistance level. Under the program, the average homeowner has received payments equivalent to 3.75 percent of the home loan value. Until June, Fannie Mae also offered to cover any repairs to the home during the borrower´s first six months in the property, up to $3,000. Now, Fannie Mae is considering renewing or changing that program. Also, in highly impacted areas by the economic downturn that have qualified for federal financing through the National Stabilization Program, Fannie Mae is considering a 15% discount on those properties. The majority of Fannie Mae´s foreclosure incentives are for buyers who will use the property as their primary residence, or so-called public entities like Neighborhood Housing Services and other organizations that update properties for resale to owner-occupants.

The Freddie Mac program is viewed by some industry observers as an effective partnership between Freddie Mac and local real estate agents who market the homes. The program is essentially for people who have no qualms about purchasing a repossessed home. The good news is that these homes are usually in move-in condition. HomeSteps has about 20,000 properties across the country, with nearly half of this total in California Homes. The HomeSteps-Smart Buy and Fannie Mae programs are believed to be a win/win for both Freddie Mac and assisted home buyers. The programs help home buyers purchase homes with some financial assistance; and at the same time it helps Fannie and Freddie sell off some of its repossessed properties. However, the program has had it's failures and the large mortgage fund providers are looking for more deals before the financial assistance expires.