FHA loans easier to get – but more in default

WASHINGTON – March 13, 2017 – Riskier borrowers are making up a growing share of new mortgages, pushing up delinquencies modestly and raising concerns about an eventual spike in defaults that could slow or derail the housing recovery.

The trend is centered around home loans guaranteed by the Federal Housing Administration (FHA) that typically require downpayments of just 3 percent to 5 percent and are often snapped up by first-time buyers. The FHA-backed loans are increasingly being offered by non-bank lenders with more lenient credit standards than banks.

The landscape is nothing like it was in the mid-2000s when subprime mortgages were approved without verifying buyers’ income or assets, sparking a housing bubble and then a crash. Still, for some analysts, the latest development is at least faintly reminiscent of the run-up to that crisis.

“We have a situation where home prices are high relative to average hourly earnings and we’re pushing 5 percent-down mortgages, and that’s a bad idea,” says Hans Nordby, chief economist of real estate research firm CoStar.

The share of FHA mortgage payments that were 30 to 59 days past due averaged 2.19 percent in the fourth quarter, up from about 2.07 percent the previous quarter and 2.13 percent a year earlier, according to research firm CoreLogic and FHA. That’s still down from 3.77 percent in early 2009, but it represents a noticeable uptick.

While that could simply represent monthly volatility, “the risk is that the performance will continue to deteriorate, and then you get foreclosures that put downward pressure on home prices,” says Sam Khater, CoreLogic’s deputy chief economist. Such a scenario likely would take a few years to play out.

The early signs of some minor turbulence in the mortgage market add to concerns generated by recent increases in delinquent subprime auto loans, personal loans and credit card debt as lenders target lower-income borrowers to grow revenue in the latter stages of the recovery.

FHA mortgages generally are granted to low- and moderate-income households who can’t afford a typical downpayment of about 20 percent. In exchange for shelling out as little as 3 percent, FHA buyers pay an upfront insurance premium equal to 1.75 percent of the loan and 0.85 percent annually.

FHA loans made up 22 percent of all mortgages for single-family home purchases in fiscal 2016, up from 17.8 percent in fiscal 2014 but below the 34.5 percent peak in 2010, FHA figures show. The share has climbed largely because of a reduction in the insurance premium and home price appreciation that has made larger downpayments less feasible for some, says Matthew Mish, executive director of global credit strategy for UBS. House prices have been increasing about 5 percent a year since 2014.

At the same time, the nation’s biggest banks, burned by the housing crisis and resulting regulatory scrutiny, largely have pulled out of the FHA market as the costs and risks to serve it grew. Non-bank lenders, which face less regulation from government agencies such as the FDIC, have filled the void.

Non-banks, including Quicken Loans and Freedom Mortgage, comprised 93 percent of FHA loan volume last year, up from 40 percent in 2009, according to Inside Mortgage Finance. Meanwhile, the average credit score of an FHA borrower has fallen modestly since 2013. Mish says non-banks generally have looser credit requirements, and lenders have further eased standards – such as the size of a monthly mortgage payment relative to income – as median U.S. wages stagnated even as home values marched higher.

Here’s the worry: If home prices peak and then dip, homeowners who put down just 5 percent and are less creditworthy than their predecessors and will owe more on their mortgages than their homes are worth. That would increase their incentive to default, especially if they have to move for a job or face an extraordinary expense, Khater says. Foreclosures would trigger price declines that ignite more defaults in a downward spiral.

In turn, funding for the non-bank lenders from banks and hedge funds likely would dry up, and FHA loans would be harder to get, dampening housing.

Guy Cecala, publisher of Inside Mortgage Finance, says such fears are unfounded, citing some complaints that FHA mortgage standards are too rigorous.

“The non-banks (bring) a welcome change,” he says. They must meet FHA standards, he says, and are overseen by the Consumer Financial Protection Bureau.

Bill Emerson, vice chairman of Quicken Loans, the top non-bank lender, says the credit standards of his firm and his peers are stringent by historical standards and seem looser only because banks tightened requirements after the housing crash.

“I don’t have any concerns about” a potential rise in bad loans, Emerson said.

Copyright 2017, USATODAY.com, USA TODAY, Paul Davidson

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Wage growth now matches rental rate growth

WASHINGTON – July 22, 2016 – U.S. renters are seeing their housing costs rise at a much more manageable pace, as new construction has tempered years of runaway increases in rent.
Real estate data firm Zillow says that median rent rose a seasonally adjusted 2.6 percent in June from a year ago, matching the gains in average hourly wages. Rental costs have decelerated after consistently exceeding earnings growth in previous years, a sign that additional building is giving more options.
The median monthly rent nationwide was $1,409. Annual increases in rent surpassed 9 percent in both the Seattle and Portland, Oregon areas, although it has moderated in markets such as San Francisco, where yearly price growth went from double-digit gains to 7.4 percent.
Prices are rising above the national average in New York City and Los Angeles. But they’ve settled at less than 2 percent in Cincinnati and Cleveland, host of the Republican National Convention this week. Still, rental costs are much cheaper in both Ohio metro areas than the national average.
In Philadelphia, where the Democrats will hold their convention, median rent is more expensive and has been rising at a 2.5 percent to $1,582 a month.
Not all indicators show rent as moderating. The government’s consumer price index found that rents had jumped 3.8 per cent from a year ago. Shelter accounts for a third of all consumer expenses, according to the index.
Builders have been adding to the national supply of apartments. They completed 310,300 multi-family buildings last year, a 21.4 percent jump from 2014, according to the Commerce Department. Apartment construction through the first half of this year is running another 5.6 per cent ahead of the 2015 pace.
Copyright © 2016 The Canadian Press, Josh Boak. All rights reserved.

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Things first-time home buyers need to know

 

WOODLAND PARK, N.J. – July 22, 2016 – The economy is improving, interest rates are low and many consumers now find themselves in a great position financially to become a first-time homeowner. There’s a small problem though for some locations around the country – the booming real estate market is resulting in rising home prices and increased competition for the most desirable properties.
The S&P/Case-Shiller national home-price index recently estimated that 2016 prices are within four percent of the peak in 2006. In some areas, low inventories around the country are making the situation even more challenging.
These conditions are introducing first-time buyers to common challenges and frustrations while searching for their dream home. “Don’t get discouraged,” says Travis Peace, executive director of mortgage at USAA Bank. “Buying a home requires some fortitude and the process intimidates many – not just those doing it for the first time.”
As a result, Peace says it’s easy to concentrate too much on home buying “can’ts” rather than “can-dos,” and he offers this advice on how to overcome some common barriers.
“I Can’t” No. 1: I can’t figure out the home-buying process.
Peace notes that it’s essential to do research and to be equipped with basic information, but also be willing to ask for help when needed. For example, an experienced real estate agent can keep a buyer apprised of everything from area sales trends to the latest changes in state and federal laws that could impact a mortgage application.
“This is where experienced, licensed professionals can help,” Peace says. “Real estate agents can be an advocate for the buyer throughout the entire process.”
In addition, free tools like USAA’s Real Estate Rewards Network can connect buyers with an agent and even provide rewards based on the sale price of the home.
“I Can’t” No. 2: I can’t find the perfect home for my family.
Finding the perfect home may not be realistic, but shoppers can find the right home. Personal situations will dictate buyers’ ability to wait for a home in a particular neighborhood or design style to come on the market, but not everything has to be left to chance.
Peace says the key is to set realistic expectations and not fixate on negatives that can be changed. “Whether it’s the number of bedrooms or distance to work or school, it’s alright to have some non-negotiables. However, buyers should be willing to be flexible on things that can be relatively easy to change, like paint colors or landscaping.”
“I Can’t” No. 3: I can’t afford a 20 percent downpayment.
Putting 20 percent down on a home has become more of a guideline than a rule. Today, not being able to put 20 percent down does not mean buying a home is out of reach. Peace notes that depending on a buyer’s financial situation, there may be a responsible way to get into your new home without putting 20 percent down.
Government-sponsored loan programs from the Federal Housing Authority, Fannie Mae and Freddie Mac provide loan options that require downpayments as low as three percent. Veterans Affairs (VA) loans don’t require any downpayment. While those programs are often great options for consumers who qualify, Peace notes that buyers should keep an eye on their potential total monthly payment.
“Some of these loans include fees and private mortgage insurance (PMI) that could significantly impact your overall cost,” Peace says.
Even private lenders are offering more competitive loan options. For example, USAA Bank’s Conventional 97 loan allows borrowers to acquire a mortgage with only three percent down and the bank pays the PMI costs.
Scott McEniry, a USAA member, recently moved into his new home with the help of the Conventional 97 loan. “It felt like a lifeline had been thrown to me as suddenly a house purchase was within reach again,” McEniry says.
Whether a house-hunting novice or seasoned expert, Peace underscores that being informed, getting the right help and having a healthy dose of determination are the best ways to turn a dream home into a reality.
Copyright © 2016 Argus, North Jersey Media Group, Inc. All rights reserved

Rent-to-Own Homes Make a Comeback

Investment firms bank on giving renters an option to buy

Wall Street firms have found a new way to profit from consumers with blemished credit who can’t qualify for a mortgage: let them rent a home first with the option to buy it later.

Rent-to-own programs, once run mainly by small operators, were popular with cash-strapped consumers during the 1990s. They faded a decade later when easy lending made it possible for almost anyone to buy a home with no money down, but with lenders setting a higher bar, they are making a comeback.

For investors, it is a chance to profit off the recovering housing market. Consumers get a chance to lock in a home before they have the money together for a down payment. But the price may be higher rent in the interim and a higher purchase price the longer they wait to move from renting to owning.

One of the fastest-growing rent-to-own companies is Home Partners of America, which was co-founded three years ago by formerGoldman Sachs executive William Young. Mortgage securities veteran Lewis Ranieri was an early investor in the company, and real-estate mogul Sam Zell has acted as an adviser to Mr. Young. Late last year, Home Partners received a $500 million equity investment from a group led by money manager BlackRock Inc.’s alternative investments arm.

Mr. Young, who formerly co-headed Goldman Sachs’s European mortgage department, said he saw an untapped market helping people who are being shut out of the housing market.

“What really frustrates me personally is that a lot of people I grew up with, extended family members, would have trouble getting access to mortgage credit today,” said Mr. Young. He says his company spent $100 million to buy about 320 homes in June, up from $15 million, or 66 homes, in June of last year.

Brian Stern, a managing director at BlackRock, said he sees Home Partners as a long-term, sustainable business. Mr. Ranieri said the program is both viable and needed given tightness of mortgage credit and the lack of readily available solutions. Mr. Zell declined to comment.

Here’s how Home Partners’ program works. A consumer teams up with a real-estate agent to select a home in one of Home Partners’ approved communities, which tend to be suburban locations with strong school systems and with homes priced between $100,000 and about $725,000. Home Partners buys the home and leases it to the consumer, who has the right to purchase the home from Home Partners within five years in most places. During the renting years, the consumer is expected to repair his or her credit and save for a down payment, but the longer they rent the more they will pay to acquire the house.

For example, a house shown on Home Partners website has a list price of $449,975 in Chula Vista, Calif. The family that agrees to rent that house from Home Partners has the right to purchase the home for $472,035 after one year and would have to pay $573,762 if it waited five years before purchasing, a markup of 28% from the initial list price.

The monthly rent on the property would start at $2,810 a month and escalate to $3,256 in the fifth year.

For consumers, that likely means that they are paying a premium over renting or buying a typical home. Monthly payments on a 30-year conventional mortgage on the same house would be around $1,800. The average rent for a single-family home in San Diego is $2,270 a month, according to Moody’s Analytics—although typical single-family rentals are likely smaller and in less desirable areas.

Home Partners officials say that the increases are in line with the rapid rise in home prices in markets such as California and rents are typically within 5% to 10% of comparable properties in the market. The S&P/Case-Shiller Home Price Index, covering the entire nation, rose 4.4% in the 12 months ended in May, slightly greater than a 4.3% increase in April. Home prices in San Diego climbed 4.8% year-over-year in May 2015, according to the index.

Home Partners also notes that the consumer can decide not to purchase if the home is more expensive than comparable properties in the area. If price growth slows and the consumer thinks buying a home is a bad deal, they can walk away with no penalty and Home Partners would re-rent the home. The company says that they expect about half of their renters to ultimately purchase.

Tiffany Morgan, who works in marketing in Sugarland, Texas, turned to Home Partners 2013 after a divorce destroyed her credit. When she first heard about the program, she thought it was a scam. “I thought no way…it’s some scheme that I’m going to fall into,” said Ms. Morgan, who is in her mid-30s with a 7-year-old son.

Home Partners purchased the home for around $205,000 and she rented it for about a year for $1,730 a month. That same year she improved her credit and bought the house for $215,000. She thought, “What’s the worst case? I’ll lease it for a while and then if I fall in love with it I’ll do what I need to do to make it happen.”

For consumers, the advantage is that the homes tend to be in nicer neighborhoods with better school districts than most single-family rental properties. It also guarantees that if house prices escalate faster than that, the price is guaranteed when they go to purchase the home.

Sarah Edelman, a senior policy analyst at the Center for American Progress, a Washington-based nonpartisan policy institute, said that it is early to tell if Home Partners’ rent and home price bumps will prove to be in line with the market.

“All things equal this could be a really great opportunity for consumers,” she said, referring to the cost of Home Partners program versus the rest of the market. “But all things need to be equal.”

So far, Home Partners operates only in 30 metropolitan areas in 15 states, including California, Florida and Texas. It currently doesn’t operate in the Northeast. But Home Partners is teaming up with Berkshire Hathaway Home Services and Realogy Holdings Corp., which operates several real-estate brokerage franchises including Century 21 and Coldwell Banker, which will give it national reach.

A motivating factor for home buyers to use a rent-to-own program is the combination of government policies and banks’ increased cautiousness have made mortgages much more difficult to get, even for middle-class Americans. Buyers typically must have higher credit scores than were needed even in the early 2000s, before the subprime boom. The homeownership rate for middle-income Americans has fallen to 63% from 69% in 2000, according to Zillow.

Home Partners isn’t alone in seeing a profitable niche in the rent-to-own space. New York City-based HomeLPC, started by a former Lehman Brothers banker, launched about a year ago and has expanded to three states, where it has bought two dozen homes. It plans to expand into five more states by the first quarter of 2016. Premium Point Investments, a New York-based asset manager, is in the midst of testing a rent-to-own business focused on the South and Southeast.

Whether rent-to-own will prove to be profitable remains to be seen. A number of companies that rent out single-family homes have found that few renters have become buyers, either because they haven’t been able to restore their credit or haven’t been able to save enough for a down payment. But Home Partners said its credit screening targets middle-class and affluent clients who have steady jobs and an overall financial history that makes it likely they will be able to repair their credit and save money for a down payment within a few years.

http://www.wsj.com/articles/rent-to-own-homes-make-a-comeback-1438108813

Realtors say Fla. home prices to rise 5-6% next year

WASHINGTON – Oct. 9, 2015 – Realtors® in the U.S. expect home prices to rise 3.5 percent over the next 12 months, according to the August 2015 Realtors® Confidence Index Survey, which is based on the responses of a monthly survey to more than 50,000 real estate professionals.

However, Florida’s Realtors are more optimistic about price gains than Realtors in other states, predicting a median home price growth of 5 percent to 6 percent over the next 12 months.

Only four other states came close – Washington, Oregon, Colorado and Georgia – where real estate professionals expect median price growth to be 4 to 5 percent.

Realtors surveyed say that sharp price increases in recent months have made homes unaffordable for many potential homebuyers, and that they expect prices to moderate in the coming weeks. The median price of all existing homes sold in the U.S. as of July was $234,000, a 6 percent increase on an annual basis. Home prices have risen at a faster pace than annual growth in median household income of 2 percent since 2010, according to NAR.

“Strong demand amid tight supply has pushed up prices,” according to the report. “While rising prices are lifting homeowners out of negative equity, the strong price recovery amid the modest growth in incomes is also making homes less affordable and dampening demand.”

Source: “REALTORS® Expect Price Growth Moderate in Next 12 Months,” National Association of REALTORS® Economists’ Outlook blog (Oct. 5, 2015)

© Copyright 2015 INFORMATION, INC. Bethesda, MD (301) 215-4688

Chinese all-cash buyers tripled since 2005

NEW YORK – Oct. 13, 2015 – An analysis of housing sales in the U.S. shows that 46 percent of Mandarin Chinese-speaking buyers who purchased homes in the 17 months ending in May 2015 paid all-cash, according to RealtyTrac.

The analysis by the Irvine, California-based realty research company and Ethnic Technologies, a New Jersey-based multicultural marketing company, also showed that since 2005, Mandarin-speaking buyers paying all cash had an increase of 229 percent from the 14 percent share paying all cash in 2005 – the biggest increase of any language group.

The two companies looked at 10 million publicly recorded residential property sales deeds in 2014 and 2015 compared with 2005 by ethnicity and native language spoken. The results were determined by software that can determine ethnicity and language preference based on first name, last name, and address of the record, according to Ethnic Technologies.

“Cash buyers across the board are playing a much bigger role in the housing market now than they were 10 years ago, and that is particularly true for Chinese Mandarin-speaking cash buyers, who are more likely to be foreign nationals,” said Daren Blomquist, vice-president at RealtyTrac, in a release accompanying the analysis on Oct 6.

Overall, Mandarin speakers are the second largest non-English speaking cash-paying group, totaling nearly 18 percent of all cash deals, second behind those buyers speaking Spanish at 43 percent, according to the analysis.

Blomquist said that markets with a higher share of foreign cash buyers may expect to see a stronger upside in the short term because of continued global economic instability. “But those markets are also more susceptible to a downside in the longer term when demand from foreign cash buyers dries up,” he added.

RealtyTrac quoted several US brokers in various parts of the U.S. about sales. Mark Hughes, chief operating officer with First Team Real Estate, covering the Southern California market, said: “Given the somewhat laid-back Chinese government attention to withdrawal limits, we expect these funds to continue to be a driver of activity and bidding throughout this year.”

Asian buyers make up more than one-third of all international real estate buyers in the U.S., and Chinese buyers spent $22 billion on US housing in the 12 months through March 2014 – 72 percent more than a year earlier, according to the National Association of Realtors, buying mostly high-end, expensive homes with a median price of more than $500,000.

Copyright © 2015 China Daily Information Company, Ai Heping. All rights reserved. Provided by SyndiGate Media Inc. (Syndigate.info).

Realtors divided on open house looky-loos

SEATTLE – Oct. 13, 2015 – A reader on Reddit said that she feels bad attending an open house as a looky-loo, but her 6-year-old daughter loves going into houses. The topic opened up a discussion among Realtors on how they feel about visitors with no interest in purchasing a home. Her post received over 40 comments in the last week.

“I know other people (tour open houses) all the time, but hey, a lot of people are really rude and inconsiderate,” the mother states. “I don’t want to be one of them. Is there anyway I can fulfill my daughter’s request to attend an open house without wasting anyone’s time and/or coming across as obnoxious? I was thinking maybe just walk straight in and very directly state: ‘We live in the neighborhood and just wanted to take a peek out of curiosity. Please don’t mind us.’ Would that be acceptable to a listing agent? Or would it be better to ‘pretend’ to be interested, and just try to get in and out quickly and not monopolize their time?”

The post prompted HousingWire to offer tips to consumers who want to crash an open house, saying there’s a right way and a wrong way to do it. For example, it tells snoopers not to pose as a buyer, be polite, listen to the real estate agent’s sales pitch and don’t act as if they know more about the housing market than the real estate agent.

But many agents responded to the post saying they welcome visitors who want to snoop.

“They may be interested in what homes are selling for,” said Christine Donovan to The Orange Register when a reporter asked her the question. “They may want to get ideas for remodeling or redecorating their home. They may be looking for a friend of family member, or they may just be bored. Neighbors are more interested than anybody else, (and) they often know something about the neighborhood or another house that sold that the agent might like to know.”

Donovan says she’s “happy to have someone come in and just let me know they are curious and not looking to buy. We do ice cream open houses for our sellers, and you have to expect the kids are going to want to bring the parents. Who knows, it might turn out to be the right house for somebody they know even if that wasn’t the original plan.”

Source: “Open House Crashing: Are You For or Against It?” realtor.com® (Oct. 8, 2015); “Reddit Posters, Real Estate Agents Kick it Around: Are Looky-Loos Really Welcome at Open Houses?” The Orange County Register (Oct. 9, 2015); and “Is It OK to Gatecrash a Realtors®’s Open House?” HousingWire (Oct. 6, 2015)

© Copyright 2015 INFORMATION, INC. Bethesda, MD (301) 215-4688

Study ranks the risk of damage from a storm surge

TAMPA – Oct. 14, 2015 – The Miami area, including Fort Lauderdale and southern Broward County, is the nation’s fourth-most vulnerable region to the economic cost of storm surge in a 100-year hurricane, according to a recently released report.

A 100-year hurricane is one that has a 1 percent chance of occurring during any calendar year and a 10-percent chance of occurring within 10 years.

In the Miami area, that’s a Category 5 hurricane with top wind speeds of 165 mph, according to the report by Karen Clark & Co. a catastrophe modeling firm based in Boston. It said the tidal surge from such an event would have devastating consequences for the region, causing some $80 billion in damages. Wind damages were not measured in the report.

The study is the first based on probability and losses from an equally likely 100-year hurricane, the study’s authors said. Loss estimates were based on Karen Clark & Co.’s high-resolution coastal flooding model, which the company says was developed to allow private insurance companies to more accurately estimate levels of risk and sell more flood insurance.

As devastating as $80 billion in property damage might be for the Miami region, three cities would suffer more expensive losses in a 100-year storm.

And while four Florida cities are among the eight most vulnerable to storm surge flooding, the west coast of the state – with a shallower sea bed and more inlets – is more vulnerable than the east coast, the study said.

The Tampa region was ranked as the nation’s most vulnerable city, with estimated losses of $175 billion. One reason is that the wide and shallow continental shelf off Florida’s west coast would create higher sea levels. Another reason is that Tampa Bay would act as a large funnel when maximum winds moved into the mouth of the bay.

A severe storm with the right track orientation could cause an “enormous buildup of water that will become trapped in the bay and inundate large areas of Tampa and St. Petersburg,” the report said.

Half of the area’s population lives on ground less than 10 feet above sea level.

New Orleans, with half of the city at or below sea level, is the second-most vulnerable city, with estimated losses of $130 billion. Its low elevation and marshy terrain means storm surges can travel long distances before peaking, with additional flooding likely from Lake Ponchatrain as happened during Hurricane Katrina a decade ago.

With losses estimated at $100 million, New York City is third-most vulnerable. High surges would flow into Lower Manhattan, Staten Island and the south shore of Long Island, including Rockaway Beach and Islip.

Storm surge is less likely in the Miami region because the continental shelf falls off steeply off the coast, and there are few bays or other water features to create channeling, the report said. The area’s vulnerability stems from the high value of properties on low-elevation land near the coast. “It’s also one of the most likely areas for a direct hit from a severe Category 5 storm,” the report said.

Rounding out the report’s eight most vulnerable cities are Fort Myers (estimated loss: $70 billion), Galveston-Houston, Texas ($55 billion), Sarasota ($50 billion) and Charleston, S.C. ($45 billion).

Most of the loss potential for the eight cities is not currently insured, and private flood insurance has been difficult to obtain, primarily because loss potential has been difficult to assess, the report states.

The National Flood Insurance Program, which provides total coverage for most residential homes, caps coverage for businesses at $500,000 per building and $500,000 for a building’s contents. That leaves untold millions of dollars of coastal property value uninsured for flooding and many companies reluctant to offer policies because they have a tough time pricing the risk.

The authors say their high-resolution forecast model could help private flood insurers write more coverage.

Lynne McChristian, Florida representative for the Insurance Information Institute, an industry trade group, said in an email that different companies offer different models for predicting flood damage. Insurers price risk based on various models for the same reason weather forecasters rely on multiple hurricane tracking models.

More data means better risk modeling, and that gives insurers information they need to more accurately estimate flood insurance rates, and to better understand how much capital and reinsurance they would need to pay anticipated claims.

They need “some type of insurance that they will be allowed to charge a premium that accurately reflects the flood risk,” she said. “Without that, it would be very difficult for insurers to commit to a large private flood market.”

2015 the Sun Sentinel (Fort Lauderdale, Fla.), Ron Hurtibise. Distributed by Tribune Content Agency, LLC.

New rules to help lower- and moderate-income applicants qualify for mortgages

WASHINGTON – Oct. 14, 2015 – New rules adopted last month by Fannie Mae will allow mortgage applicants to qualify for a home loan by counting the salaries of other relatives who live in the house – although their names may not be listed on the mortgage.

It’s a move that could potentially help more people qualify to buy homes, as long as it is done carefully, according to one Pittsburgh-area real estate executive. The new HomeReady program is aimed at helping creditworthy borrowers with lower and moderate incomes gain access to mortgages.

“For the first time, income from a non-borrower household member can be considered to determine an applicable debt-to-income for the loan, helping multi-generational and extended households qualify for an affordable mortgage,” said the news release issued by the mortgage giant, which said its research found such extended households typically have incomes that are as stable or more stable than other households at similar income levels.

Other HomeReady adjustments 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.

Commonly known as Fannie Mae, the Federal National Mortgage Association is a government-sponsored enterprise with the mission of bringing liquidity, stability and affordability to the U.S. housing market. It does this by purchasing mortgages from banks and then reselling them on the secondary market to investors. Once Fannie Mae purchases the mortgages from banks, it frees the banks up to make more home loans.

Ken Fears, director of regional economics and housing finance for the National Association of Realtors in Washington, D.C., noted, “The economic slowdown is causing families to double up or even triple up,” he said. “There are certain immigrants to the U.S. who prefer inter-generational households.

“It was more common in the U.S. 50, 60 and 70 years ago,” Mr. Fears said. “As the U.S. became more of an economic powerhouse, the standard of living increased and folks moved out on their own. Now they are coming back together – at least for the time being.”

Fannie Mae’s move could be a step in the right direction, said Howard “Hoddy” Hanna III, CEO of Howard Hanna Real Estate Services.

He has some concerns about the execution. “What we don’t want to have happen is people fabricating stories that all these incomes will be in the house when they possibly might not be,” he said.

Still, Mr. Hanna added, “All in all, the rule change is very reflective of today’s world. We have far more multi-generational families living under the same roof.”

He thinks one way to make sure all those in the household are invested in the idea is by having any working relatives in the household put their names on the mortgage.

“If the son and daughter-in-law were required to put their names on the mortgage note, it would keep them in the house longer,” he said.

“What we don’t want is for a borrower to qualify for a mortgage on $5,000 monthly income and then family members move out and the borrower only has $2,500 income. Then we are setting ourselves up for a mortgage problem like we had not too long ago.”

During the national housing slump that began before the recession, many borrowers found themselves in over their heads when values plummeted and jobs disappeared.

Mr. Fears said some will likely see the new Fannie Mae rules in the same light as the loosening of restrictions that occurred prior to the subprime credit crisis. But he said while this is a loosening in one dimension, it does not lower credit score requirements or downpayment requirements.

HomeReady loan applicants also will be required to complete an online education course preparing them for the home buying process.

“Fannie Mae is asking for a trade off with education,” he said. “They are offsetting the risk with the education. I would expect this loan option to be more prevalent on the east and west coasts where there is a large migrant population, and in high-cost urban areas where it may take more income to make ends meet.”

© 2015 the Pittsburgh Post-Gazette, Tim Grant. Distributed by Tribune Content Agency, LLC.

What should homebuyers know about Oct. 3 changes?

WASHINGTON – Sept. 18, 2015 – The Consumer Financial Protection Bureau (CFPB) released new online tools for its Know Before You Owe initiative yesterday to help consumers navigate mortgage process changes that occur on Oct. 3, 2015.

The Mortgage Bankers Association issued a separate consumer-friendly set of instructions last week.

“Homebuyers will ask their Realtor about the mortgage disclosure changes – what they should expect,” saysMargy Grant, Florida Realtors vice president and general counsel. “And while Realtors must understand the impact on closings – such as the dates when certain documents must be submitted to close on time andchanges to some Florida Realtors forms – a mortgage is still an agreement solely between a buyer and his or her lender.”

The CFPB offers help to buyers in a number of ways, including brochures, videos and infographics. In addition to explaining the new disclosures, CFPB includes a step-by-step overview of the mortgage process, a tool to help homebuyers decide how much they can afford to spend, and samples of the new Know Before You Owe mortgage forms, the Loan Estimate and the Closing Disclosure.

“Realtors play an important role in keeping consumers educated about changes in the home buying process, and that includes rules related to the Know Before You Owe initiative,” said National Association of Realtors® 2015 First Vice President-Elect Elizabeth Mendenhall, who joined CFPB Director Richard Cordray to announce the new tools.

“The journey to homeownership begins with Realtors, and CFPB’s new online tools are a great resource for agents to help clients shop for a mortgage and prepare for the changes coming their way,” Mendenhall said.

The Loan Estimate includes early estimated loan and closing costs so buyers can compare different lenders offers. The Closing Disclosure, which arrives within three days of closing, details the final transaction numbers. The three-day time period allows consumers to confirm that they’re getting what they expected, ask questions and negotiate any changes.

The Loan Estimate and Closing Disclosure also mirror each other, which CFPB says will help buyers compare their initial estimates to the final loan terms.

The CFPB first launched “Owning a Home” in January but recently added new tools to help consumers navigate the mortgage experience.

© 2015 Florida Realtors®