Fannie Mae Unveils Mortgage Program to Help Minority Borrowers – WSJ

Make it easier … that seems to be our goal these days. A household like those described below receive all kinds of accommodations, but a traditional family earning average or slightly below income struggles. Given the complexity of these arrangements, the difficulty in verifying the multiple incomes or even their stability how can this not be setting up for new problems? Who is legally responsible for this type of mortgage, every extended family member individually?

On top of that we are back to 3% down payment loans. Do we ever learn a lesson?

How does it help low-income Americans by exposing them and their extended families to more financial risk?

By
Joe Light
Updated Aug. 25, 2015 7:55 p.m. ET
Fannie Mae wants to make it easier for working-class and multigenerational households to get a mortgage.

The mortgage-finance company said Tuesday it would roll out a program this year that lets lenders include income from nonborrowers within a household, such as extended-family members, toward qualifying for a loan.

The move is expected to open up mortgage access to a segment of the population that doesn’t fit the typical family structure and has had trouble obtaining mortgages. In households of some minority groups, such as Hispanics, it is common to have extended-family members contributing income toward the cost of housing, though until now that income couldn’t be used to help qualify for a loan.

The new program, which is open only to low-income borrowers or those living in low-income or minority-dominated areas, will also in some cases let borrowers who don’t live in the home, such as parents, contribute income. Families with boarders will also be allowed to count that rent toward qualifying.

Fannie officials said their research indicated that extended households have incomes as stable or more stable than other kinds of households at similar income levels.

A spokeswoman for Fannie Mae’s regulator, the Federal Housing Finance Agency, said in an email that the program “reflects today’s economic reality, where many people live in non-traditional households with multi-generational family members, friends, and/or boarders” but that it is “structured with safeguards that maintain high standards of safety and soundness.”

Critics of the program said that counting nontraditional income could lead borrowers into mortgages they ultimately can’t afford and therefore increase the risk of default.

“I don’t think this is a step forward for borrowers. These other incomes that they’re adding are not of the same quality” as traditional forms of income, said Edward Pinto, co-director of the conservative American Enterprise Institute’s International Center on Housing Risk.

Mr. Pinto said income from sources such as boarders is difficult to verify and that he hasn’t yet seen evidence that income from nonborrower occupants is stable enough to be safely counted when underwriting a mortgage.

Fannie Mae and competitor Freddie Mac don’t make loans. They buy them from lenders, package them into securities and provide guarantees to make investors whole in case of default.

After the financial crisis, Fannie, Freddie and lenders strengthened the requirements borrowers had to meet to get a loan. The moves, such as increasing down-payment and credit-score requirements, had the effect of lowering default rates for homeowners but also shut out of the mortgage market many borrowers who previously qualified.

Over the past couple of years, Fannie, Freddie and lenders have loosened some of those restrictions. In late 2014 and early 2015, Fannie and Freddie, for example, reintroduced programs that allow down payments of as little as 3%, down from the previous 5% minimum.

However, some advocates for increased minority homeownership have argued that the companies should also make changes reflecting the unique characteristics of the minority groups that are making up an increasing share of new households.

Source: Fannie Mae Unveils Mortgage Program to Help Minority Borrowers – WSJ