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Fannie Mae Revamps Mortgage Program
Fannie Mae is overhauling its mortgage program for low- to moderate-income households to better accommodate today’s financial and familial realities.
Renamed HomeReady (from MyCommunityMortgage) and set to start in December, the program has revised guidelines to acknowledge that many borrowers share homes — and finances — with extended family. That’s the situation for about 19 percent of African-American households and 24 percent of Hispanic households, according to Jonathan Lawless, Fannie Mae’s vice president for underwriting and pricing analytics.
Lenders will now be able to qualify borrowers by including income generated by non-borrowers living in the household. Data generated by the Census Bureau’s American Community Survey and American Housing Survey shows that this income tends to be stable over time, Mr. Lawless said. (Fannie Mae will publish the specifics on those findings later this year.) “So it’s not only common to have multiple generations or more than one family living in the same house,” he said, “but it’s something that actually helps support the household.”
Borrowers may also be able to include income from non-occupant co-borrowers such as parents. The down payment requirement is as little as 3 percent. Fees and mortgage insurance requirements will also be lower than on standard loans.
The program will no longer be limited to first-time home buyers. By expanding eligibility to repeat buyers, Fannie Mae hopes to help homeowners who lost wealth (in the form of home equity) when property values plummeted, Mr. Lawless said.
There are no income guidelines for borrowers buying within designated low-income census tracts. Those buying in high-minority census tracts must have no more than 100 percent of area median income. And those buying in all other census tracts must be at or below 80 percent of area median income.
All borrowers must complete a homeownership education course. The online course takes four to six hours, Mr. Lawless said. Borrowers will be provided with information about housing counselors in their area who can offer advice should they ever struggle to make mortgage payments.
While it’s not clear how many lenders will offer the program, HomeReady could offer an opportunity for some households burdened by high rents to get into homeownership. A recent report from Zillow found that the average renter now spends 30.2 percent of his or her monthly income on rent, compared with an average of 15.1 percent for homeowners with a mortgage. In high-cost metro areas, the rental burden rises to as high as 40 percent.
Wells Fargo, one of the nation’s largest lenders, is preparing to offer the HomeReady program, “and we’re very enthusiastic about it,” said Brad Blackwell, an executive vice president. The program, he said, will be part of the bank’s effort to better serve low- and moderate-income communities by increasing the company’s presence in those areas, diversifying its sales and underwriting staff, and offering more specialized mortgage programs.
“Since the recession, these communities have been slower to regain their footing, especially when it comes to achieving homeownership,” Mr. Blackwell said.
Some neighborhoods were hard hit by the housing market collapse, primarily because of loose lending practices that targeted low-income areas. But today, Mr. Blackwell said, “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.”
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