What impact will Fannie Mae retiring the HomePath Mortgage and HomePath Renovation Mortgage have on buyers?  The HomePath Mortgage (HPM) offered 5% down payment, no mortgage insurance  and no appraisal along with expanded seller contributions toward closing costs for primary residence to a foreclosed Fannie Mae property.   For investors, it offered financing with as little as 10% down payment.  Further, the HomePath Renovation Mortgage (HRRM) allowed buyers to borrow additional funds for repairs or improvements to a (up to 35 percent of the purchase price to a maximum of $35,000).  

 
Effective October 7, 2014, Fannie Mae discontinued both of those programs.  The financing options mentioned above are no longer available. A buyer can still purchase a Fannie Mae REO using other financing such as Conventional, FHA, VA or USDA depending on the property and the buyer’s qualifications.   Following are the impact of the retirement the HPM and HRRM products:

 5% down payment for Primary residence – This should have limited impact on buyers.  A buyer can get a regular conventional mortgage with 5% down payment or a FHA mortgage with 3.5% down or VA/USDA with zero down.   The 5% down payment requirement  is the same minimum down payment required for a regular conventional loan.  However, the one downside is if the buyer chooses to do a regular FHA, VA or USDA loan, then property may or may not meet the property condition guidelines under those loan programs.   

10% down payment for Investors – This will have a big impact on investors as the typical investor mortgage requires a minimum of 15 - 20% down payment depending on  credit score and profile. 

No Mortgage insurance -   This is not a big impact.  Homepath Mortgage came with a slightly higher interest rate than a regular conventional loan without the mortgage insurance.   In today’s market, a borrower can also get a regular conventional mortgage with no mortgage insurance at a slightly higher interest rate  (known as lender paid mortgage insurance).

No appraisal Required – This at first seem like a really good incentive of the HompePath Mortgage, but over the past few years many critics have accused Fannie Mae of intentionally overvaluing their properties.  They claimed that Fannie Mae listed properties above the current market value and then sought buyers willing to obtain a HomePath loan.   Now buyers of Fannie Mae REOs will need to get and pay for a current appraisal of the property.   This is a good thing for the buyer because the current appraisal should reflect true market value. 

Renovation Mortgage –  This will impact investors in terms of down payment.  Buyers purchasing properties as primary residence can do a FHA 203k loan or a Homestyle Renovation mortgage with 3.5% and 5% down payment.   Investors are not eligible for the FHA 203K but can participate in the Homestyle Renovation mortgage with  a minimum of 20% down or use non prime alternatives.
 

Fannie Mae has introduced what it calls "financing flexibilities” to replace those two programs.   Primary residence transactions are eligible for interested party contributions (IPCs) up to 6% for loans > 90% LTV (standard Fannie Mae or conventional guidelines cap at 3% > 90% LTV).   Also, borrowers who own 5-10 financed properties are eligible for a maximum 75% LTV when purchasing a 2-4 unit investment property (standard Fannie Mae guidelines cap at 70% LTV).    However, the biggest impact in discontinuing the HPM and HRRM will be for investors who will have to come up with more money out their pockets.