Early adopter calls HomeReady a boon to community reinvestment
Congress created Fannie Mae in 1938 to ensure a reliable, steady source of funding for housing – all the time and in all markets. In keeping with that mission, Fannie Mae offers HomeReady® mortgage. This affordable lending product makes homeownership a reality for even more Americans.
Lenders such as TD Bank have readily embraced the product. They report that – out of the gate – HomeReady has been a boon to their community lending. “Since we launched HomeReady in September 2016, it has been a success,” says Sheila Hatfield, a vice president and loan structuring specialists at TD Bank. The lender offers mortgage loans along the East Coast – from Maine to Florida.
“Our volume is greater than we initially anticipated,” says Hatfield. “TD Bank was very excited to have sales offer this new product. And we had customers lined up to apply as soon as we launched.”
Flexibility for Shared Households
HomeReady includes several features that expand eligibility for creditworthy low- to moderate-income borrowers. Extended-household living arrangements are common among underserved populations – including minority and immigrant households. And they offer one example of the changing market demographics that HomeReady aims to serve.
“There are lots of households that have people who are working and who can contribute in times of trouble,” says Kathy Litzenberg, a product development manager in Fannie Mae’s Single-Family Marketing. “However, with other loan products, unless those individuals are on the loan, it doesn’t make a difference in terms of qualifying. HomeReady offers the innovative non-borrower household income flexibility that considers income from non-borrower household members as a compensating factor to allow borrowers to have a higher debt-to-income (DTI) ratio.”
TD Bank’s Hatfield says this form of flexibility is a big factor in the number of HomeReady loans the bank is originating.
“The DTI with HomeReady can go up to 50 percent if the borrower has non-borrower household income, which is a benefit for shared households,” says Hatfield.
An example would be a borrower whose parent is living with them and not paying rent, but has sufficient monthly income to help support the household expenses. The borrower can use their parent’s income as a compensating factor to support a higher DTI. “It’s a nice feature of the product,” she says.
Even if the borrower only uses the non-borrower’s income occasionally for groceries or household expenses, it’s still a compensating factor that helps to boost the borrower’s DTI ratio.
Among its other benefits, HomeReady pricing is at least as good as or better than standard loans. It also reduces mortgage insurance requirements for loan-to-value (LTV) ratios above 90 percent.
In addition, the borrower does not have to be a first-time buyer. That’s not the case with some affordable lending products.
Mattress Money Allowed
William Diouf, a manager for Fannie Mae Single-Family, says HomeReady allows borrowers to use “mattress money” or “cash-on-hand” for the down payment or closing costs.
Cash-on-hand literally means money that the borrower has saved but has not deposited in an account at a financial institution, he says. Most likely, the borrower hasn’t had a banking relationship. The HomeReady borrower can use these funds when they have deposited them in a new account or put them in escrow with the title company for at least 30 days.
Before HomeReady, Right Step was TD Bank’s affordable lending product. Hatfield says this product has some of the features of HomeReady – but not all of them.
“Right Step has been a good product for TD. But we felt there was another level of borrower we weren’t reaching. And HomeReady helps us reach those borrowers,” she says. “At TD, investing in the communities we serve is core to our purpose. We are proud to offer this product to our customers.”
“In addition to the expanded debt-to-income ratio, TD Bank offers a $2,000 closing-cost credit to all HomeReady borrowers,” Hatfield says. “We’re having good results.”
Fannie Mae launched HomeReady in December 2015. Since then, according to Litzenberg, it has used live webinars to provide HomeReady training to more than 7,000 individuals in its lender partner organizations. In addition, there is an eLearning course – running about an hour – available on the web.
Diouf developed the training for loan officers. He says 85 percent of the training sessions are lender-specific. And that enables him to tailor the training to a lender’s individual needs.
“Customized training gives us the opportunity to hear from the loan officers about what’s complicated, what needs more explanation, and how to simplify the product,” says Diouf. “We then provide feedback to the product team. They have been extremely responsive to ideas for making the product easier to understand and easier to use.”
Beyond the specialized training, TD Bank’s Hatfield recommends the HomeReady page.
For lenders who are new to the product, “there’s a vast amount of information on the Fannie Mae website,” she says. “The details of the product are very clear. There are many helpful tools – as well as FAQs based on feedback from lenders.” The site provides “really all the information and tools necessary to successfully implement HomeReady.”