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Mortgage Rule Change Helps More Homebuyers Qualify

New Fannie Mae rules to help lower- and moderate-income applicants qualify

Oct. 14, 2015

By TIM GRANT Pittsburgh Post-Gazette - Tribune News Service

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, 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."

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