Private lenders offer 5% down payments to unseat FHA

Mortgage lenders are throwing cash-poor homebuyers a bone in the form of new loans that require down payments of only 5 percent.

TD Bank, Bank of America and Wells Fargo are among the institutions seizing a market opportunity in a lending realm once dominated by the Federal Housing Administration, CNN Money reported.

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Following the housing bust, the agency picked up the slack in lending to borrowers who could not come up with 20 percent down payments — which became the standard. But the FHA is now pulling back, raising premiums for borrowers and requiring them to take out private mortgage insurance, as of this year. That has created a window for private lenders.

“As the FHA selectively reduced market share by increasing premiums, we introduced a substitute for FHA loans,” Malcom Hollensteiner, director of retail lending sales for TD Bank, told CNN Money.

And as home prices continue to rise, loans are also becoming less risky and more appealing to private lenders. [CNN Money]Julie Strickland