The move, targeting buyers with good credit but little cash, has drawn fire for encouraging the kind of risky lending that caused the mortgage meltdown and financial crisis. But Fannie and Freddie executives said the programs contain proper safeguards.
The loans, unveiled Monday, reverse a trend of tighter lending standards by the government-sponsored mortgage giants since their taxpayer-financed bailouts. The programs allow only fixed-rate loans on single-family homes used as a primary residence.
"We are confident that these loans can be good business for lenders, safe and sound for Fannie Mae and an affordable, responsible option for qualified borrowers," said Andrew Bon Salle, executive vice president for single-family underwriting, pricing and capital markets at Fannie Mae.
The programs could give a boost to first-time home buyers, who have largely stayed on the sidelines of the housing market rebound. First-time buyers this year made up the smallest share of the housing market in 27 years, according to the National Assn. of Realtors.
"First-time home buyers have had trouble, and a lower down payment always helps," said Mark Goldman, a mortgage broker who teaches real estate at San Diego State University.
A Federal Reserve survey released in August found that 45% of renters delayed buying a home because they couldn't afford a down payment.
Sam Khater, deputy chief economist for housing data firm CoreLogic, predicted that the new loans would inject a bit of fuel into a housing recovery that's stalling out. But the main problem facing buyers is sluggish growth in their wages, not down-payment requirements, he said.
Fannie and Freddie purchase about half of all new home loans from banks and package them into securities for investors. But lenders still have to make the loans, and some remain skeptical of any 3% down-payment program.
"The idea that you can get a mortgage with just 3% down is something that can get us back into bubble territory," Russell Goldsmith, chairman of City National Corp. in Los Angeles, said in a recent interview.
Bank of America Chief Executive Brian Moynihan told a conference recently that his bank was unlikely to participate.
"I don't think there's a big incentive for us to start to try to create more mortgage availability where the customers are susceptible to default," Moynihan said last month.
The Federal Housing Finance Agency, which regulates Fannie and Freddie, announced its intent to launch the programs in October. Director Melvin Watt said Monday that the 3% down-payment programs come with strong underwriting standards that ensure sound lending practices.
Borrowers can already tap a variety of low-down-payment mortgage programs, including those backed by the Federal Housing Administration and Veterans Administration, along with those from various state housing finance agencies, including California's.
But some of those loans carry higher fees or mortgage insurance premiums that can make them costlier than conventional mortgages. The new programs from Fannie and Freddie would enable more creditworthy borrowers, even those with lower incomes, to avoid high fees and pay less for private mortgage insurance.
Since 2011, Freddie Mac has required at least a 5% down payment on loans it guarantees.
Fannie Mae, starting late last year, required a 5% down payment for most mortgages it backed, but still offered to back loans with a 3% down payment made through some state housing finance agencies.
The Federal Housing Finance Agency said the 3% down payment loans would be a small portion of the firms' portfolios.
Fannie Mae and Freddie Mac will offer somewhat different programs.
Fannie Mae's program, which begins Saturday, will be available to anyone who has not owned a primary residence for three years. Private mortgage insurance will be required.
Borrowers with Fannie Mae mortgages will be able to refinance under the program and can take out up to $2,000 to cover closing costs but will not be allowed to remove equity from their home.
Freddie Mac's program, called Home Possible Advantage, will begin in March. It is open to anyone who meets certain requirements, but first-time home buyers must participate in a homeownership education and counseling program.
Homeowners with Freddie Mac mortgages could also refinance under the program, but would not be able to take any cash out as part of the process.
Fannie Mae and Freddie Mac were seized by the government in 2008 as they teetered near bankruptcy because of bad mortgages they backed.
Taxpayers pumped $187.5 billion into the companies to keep them afloat. But as the housing market has rebounded, Fannie Mae and Freddie Mac have returned to profitability.
This year, the firms finished repaying all the bailout money through quarterly dividend payments to the government. They have continued making billions of dollars in dividend payments, helping reduce the government's overall budget deficit.