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Tweaked home buying program helps low-to-moderate income households.

Fannie Mae’s MyCommunityMortgage has been overhauled and renamed HomeReady, and set for a December start. The reset of the mortgage program for low-to-moderate-income households was made to better accommodate today’s financial and familial realities: acknowledgement that many borrowers share finances and homes with extended family. According to Jonathan Lawless, Fannie Mae’s Vice President for underwriting and pricing analytics, this is the reality for nearly 19 percent African-Americans and 24 percent of Hispanic households.

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Borrowers will now be able to qualify by including the income of non-borrowers living in the household, even income generated from non-occupant co-borrowers such as parents. Based on data culled by the Census Bureau’s American Community Survey and American Housing Survey, this type of household income is generally stable over time and Fannie Mae will publish specifics based on this research later in the year.

“So it’s not only common to have multiple generations or more than one family living in the same house,” Lawson said, “but it’s something that actually helps support the household.”

The program at a glance

• The program will not be limited to first-time homebuyers. Fannie Mae hopes to help repeat buyers that experienced tanking equity in a previous home after property values fell.
• Fees and mortgage insurance requirements will be lower than standard loans. The down payment requirement is as low as 3 percent.
• Within designated low-income census tracts, borrowers will not be subject to income guidelines. Anyone buying within high-minority census tracts must not have more than 100 percent of the median income in the area and those buying in all other census tracts must be at or below 80 percent of the median income of the area.
• All borrowers must complete a four to six hour online homeownership education course. Borrowers will be provided with housing counselor information in their area should they ever find themselves struggling to make mortgage payments.

While there’s no guarantee on a specific number of lenders that will offer the program, HomeReady could be the opportunity for some households that are strapped with high rental cost to have an easier pathway into homeownership. A recent Zillow report shows that the average renter spends 30.2 percent of their monthly income on rent, compared to 15.1 percent of monthly income spent by homeowners with a mortgage. In high-cost metro areas, the percentage of monthly income devoted to rent, climbs as high as 40 percent.

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One lender is excited about offering the HomeReady program and being a part of its effort to better serve low-and moderate-income by increasing their presence in those areas. Brad Blackwell, an executive vice president with Wells Fargo said, “Since the recession, these communities have been slower to regain their footing, especially when it comes to achieving homeownership.”

Loose lending practices targeting low-income areas precipitated many of the issues that these neighborhoods experienced in the wake of the housing market collapse. Blackwell feels strongly about differentiating between the home buying programs today and the pre-housing collapse programs.

“We are very diligent in our assessment of borrowers’ ability to repay. We don’t feel that the programs out today or the HomeReady program are anywhere close to tipping the scales to credit that’s too loose”, said Blackwell.

In PEMCO Limited article, “The Truth about Housing Inequality”, while reporting on housing inequality in the neighborhoods that HomeReady is hoping to be a stimulant for homeownership; it gives a cautionary tale about what happens when lenders go back to not ‘being as diligent in their assessment of borrowers’ ‘ability to pay’: “The last great housing boom pushed the ‘homeownership is good’ mantra to the limit when nearly 70 percent of Americans owned a home. Many homeowners utilized programs powered by policies to quell increasing financial inequality and encourage homeownership. The bubble burst and soon homeownership levels dropped close to levels not seen since the late 50’s.”

Sources:

PEMCO Limited. The Truth about Housing Inequality

New York Times. Fannie Mae Revamps Mortgage Program