Innovative Mortgage Product From Fannie Mae Helps More Borrowers Qualify
A recent article in National Mortgage News (NMN) says that HomeReady™ mortgage by Fannie Mae, which lets lenders consider income from other household members when qualifying borrowers, received “near-universal praise from industry representatives and federal officials” at a recent housing symposium.
As reported by NMN, the symposium speakers said they expect HomeReady will “expand credit to more borrowers and open the door to more innovation in evaluating a borrower’s ability to repay.”
HomeReady, announced earlier this year and now widely available, helps to address the home financing challenges of multigenerational households, such as parents, adult children, and others sharing a home, minority families, and low- and moderate-income households.
And that’s a fast growing segment of the population.
According to the Pew Research Center, a record 57 million Americans, or 18.1 percent of the U.S. population, lived in multigenerational family households in 2012, double the number who lived in such households in 1980.
“The program allows lenders to consider factors other than the immediate income of a loan applicant,” according to the NMN article.
“This model works well for Hispanics with multigenerational and multifamily households” where you have several individuals contributing to the mortgage payment, Joe Nery, president-elect of the National Association of Hispanic Real Estate Professionals, told NMN. Of the 15.9 million new households being created by 2024, more than one-third—about 5.6 million—are projected to be Hispanic households.
“In the Hispanic community, having a roof over your family’s head is everything. And they will do everything to make that mortgage payment,” agreed Richard Green, special senior advisor for housing finance in policy development and research at the Department of Housing and Urban Development.
HomeReady is also a low down payment mortgage, allowing borrowers to put as little as 3 percent down. Plus, the down payment is not required to come from the borrower’s own funds but can be funded from down payment assistance programs or gifts, eliminating what Trulia cites as the largest barrier to homeownership for many.
Promoting Safe and Sound Homeownership
HomeReady is also receiving praise from the Federal Housing Finance Agency (FHFA), which regulates Fannie Mae. Bob Ryan, special adviser to FHFA Director Mel Watt, says changes in demographics and the way people earn a living provide a “real opportunity for innovation,” according to NMN.
Earlier this year, a FHFA spokeswoman wrote that the program “reflects today’s economic reality, where many people live in non-traditional households with multigenerational family members, friends, and/or boarders,” but that it is “structured with safeguards that maintain high standards of safety and soundness.”
One of those safeguards is making sure prospective homeowners take a pre-purchase homeownership education course and can receive ongoing support from a HUD-approved housing counseling agency.
“We heard from lenders that our homeownership counseling and education requirements left too much ambiguity as to what the actual requirements were (based on feedback on MyCommunityMortgage®, the predecessor of HomeReady),” Carlos Perez, chief credit officer for Fannie Mae’s Single-Family division, told Housing Industry Forum.
The online education course, offered by Framework Homeownership LLC is available in both English and Spanish. Borrowers are required to pass an online test to receive a completion certificate. “This will help set borrowers up for success and be easier for lenders to execute,” says Perez.
More information on HomeReady is available on Fannie Mae’s KnowYourOptions.com website. Borrowers interested in applying for a HomeReady mortgage should contact their lender. HomeReady lender resources can be found here.
Source: “Fannie Program on Verifying Household Income Garners Praise,” published by National Mortgage News, Nov. 25, 2015.