3 Percent Down Loans ‘Safe, Sound’ and Promoting Homeownership
Fannie Mae’s Housing Industry Forum published an article on the safety and soundness of HomeReady™, a recently announced mortgage offering 3 percent down and other flexibilities to help lenders qualify households using nontraditional income (such as Extended Income Households or EIHs). EIHs could be multiple generations living in the same household, parents and adult children, or related adult income earners such as brothers, uncles, or cousins.
The mortgage includes an educational component, offered online. Borrowers who complete the course are eligible for ongoing support with a free U.S. Department of Housing and Urban Development-approved counseling agency.
The article addresses concerns raised that low-down products such as HomeReady are “unsafe.”
Anne McCulloch, who leads Fannie Mae’s Access to Credit and Affordable Housing initiatives, describes HomeReady’s underwriting standards as promoting safe, sustainable lending, with no risk-layering. “The higher debt-to-income (DTI) allowance we make where there is non-borrower household income is supported by the performance difference for EIHs we see in the data. Desktop Underwriter helps lenders look at borrowers’ ability to manage credit, their DTI and loan-to-value (LTV) ratio and other factors. Generally if you want a higher LTV you’ll need higher credit quality. If you want a high DTI then you may need a lower LTV,” the article points out.
McCulloch describes the “broad based” research undertaken by Fannie Mae to develop the product. “The findings…led to retooling one of Fannie Mae’s core single family products and to changes in policies and technologies with the goal of responding to how families live today and serving the population we have and the households that are beginning to emerge,” she says.
HomeReady, a refresh of Fannie Mae’s MyCommunityMortgage® (Fannie Mae’s flagship community lending program), will be available by mid-December through Fannie Mae’s Desktop Underwriter® underwriting engine, so eligible borrowers will be flagged once their data is entered into the system. “Lenders say that gives them a real sense of confidence,” says McCulloch.
Fannie Mae also streamlined pricing and capped standard loan level price adjustments as well as created a simplified execution so lenders can sell standard and HomeReady loans together to Fannie Mae through Whole Loan or MBS deliveries, she points out.
“We’ve learned from lending practices of the past and created a safe and sound product that will help more low- and moderate-income and minority families achieve homeownership,” she adds.
Source: “Safe (And Wide) Lending: An Interview with Anne McCulloch,” by Laura Haverty, published Nov. 12, 2015, on Housing Industry Forum.