The government is once again expanding access to credit in an effort to capture a wider audience by making homeownership more available through Fannie Mae’s latest update.
Thanks to new research and lender input, Fannie Mae announced its new HomeReady mortgage that will replace MyCommunityMortgage, Fannie’s previous affordable lending product.
The latest product is designed to help creditworthy borrowers with lower and moderate incomes access an affordable, sustainable mortgage.
“HomeReady will help qualified borrowers access the benefits of homeownership with competitive pricing and sustainable monthly payments,” said Jonathan Lawless, vice president for underwriting and pricing analytics at Fannie Mae.
“We are also confident this mortgage option will create business opportunities for lenders serving the changing demographics and borrower needs seen in today’s market.
Back at the end of last year, Fannie expanded its MyCommunityMortgage product to include an option for qualified first-time homebuyers that would allow for a down payment as low as 3%.
At the time, the 3% down payment option was only allowed if at least one co-borrower was a first-time buyer. However, with the new update, first-time and repeat homebuyers can purchase a home using HomeReady with a down payment of as little as 3%.
Lenders can now also reach a wider audience due to a new functionality through Desktop Underwriter that will automatically flag potentially eligible loans.
In addition, lenders can fully leverage Fannie Mae’s integrated suite of risk management tools for greater certainty and efficiency.
While this will still be a small percentage of Fannie’s portfolio overall, this update will still help lenders find borrowers who are getting skipped over.
Also, in more good news for lenders, Fannie Mae's pricing is more favorable and simplified for lender use, and eliminates or caps standard loan level price adjustments.
This is welcomed news after Tuesday’s announcement from the Mortgage Bankers Association that total loan production expenses – commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations – decreased to $6,984 per loan in the second quarter of 2015, from $7,195 in the first quarter of 2015.
As for borrowers, they will be required to complete an online education course to prepare them for the homebuying process and provide post-purchase support for sustainable homeownership.
The education course, called Framework, is provided by the Housing Partnership Network and the Minnesota Homeownership Center, and is based on the requirements of the HUD Housing Counseling Program and the National Industry Standards for Homeownership Education and Counseling.
Additionally, the lending requirements borrowers simplified.
Under the update, income from a non-borrower household member can be considered to determine an applicable debt-to-income ratio for the loan, helping multi-generational and extended households qualify for an affordable mortgage. According Fannie Mae’s research, these extended households tend to have incomes that are as stable or more stable than other households at similar income levels, positioning them well for homeownership.
Other HomeReady flexibilities include allowing income from non-occupant borrowers, such as parents, and rental payments, such as from a basement apartment, to augment the borrower’s qualifying income.
Fannie will provide more details to lenders in the coming weeks through a Selling Guide announcement, with HomeReady guidelines anticipated for Desktop Underwriter inclusion in late 2015. Fannie Mae anticipates accepting loan deliveries under the HomeReady guidelines in late 2015 as well.
HomeReady will be available to borrowers at any income level for properties in designated low-income census tracts, and to borrowers at or below 100% of area median income for properties in high-minority census tracts or designated natural disaster areas.
For properties in remaining census tracts, HomeReady borrowers must have an income at or below 80% of AMI. Approximately half of census tracts will be subject to the 100% AMI limit or have no income limit.