Company wants to make it easier for working-class and multigenerational households to get loans
By JOE LIGHT
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.
Gary Acosta, chief executive of the National Association of Hispanic Real Estate Professionals, a trade association, said he thought Fannie’s program could change mortgage availability for tens of thousands of Hispanic families.
“It’s very encouraging. It certainly demonstrates that Fannie has done a lot of work on the issue of identifying ways to qualify more people who have the means but somehow are falling through the cracks,” Mr. Acosta said.
Some groups have also pushed the FHFA to adopt more modern credit-scoring models that can take into account rent or utility payments, which would help minority borrowers with scant credit histories.
Some lenders believe that such changes are critical to addressing the country’s changing demographics. In the next decade, three in four new households will be formed by minorities, according to researchers at the Urban Institute.
Brad Blackwell, an executive vice president at Wells Fargo Home Mortgage, said the company planned to implement the new program and that he expected its impact on mortgage lending overall to be incremental but meaningful.
“We know that the tighter guidelines that have happened since 2008 and 2009 have excluded people that probably should be homeowners and it’s our intent to keep looking for solutions,” said Mr. Blackwell, adding that he thought Fannie’s new guidelines don’t introduce new risk into the mortgage-finance system.
To qualify for loans under Fannie’s new program, borrowers must make less than 80% of their area’s median income, buy a home in a low-income census tract, or make less than 100% of the area’s median and buy a home in a high-minority census tract or designated natural disaster area.
Fannie said the new program, which also requires borrowers to undergo credit counseling, will allow down payments of as little as 3%.