Request to Extend Affordable Mortgage Access

The Mortgage Bankers Association (MBA) has officially requested that the Federal Housing Finance Agency (FHFA) expand income eligibility for certain low down payment loan programs. FHFA regulates mortgage giants Fannie Mae and Freddie Mac. The MBA sent a letter to FHFA specifically requesting changes to the Home Ready and Home Possible loan programs.

Home Ready and Home Possible currently provide interest rate pricing discounts and mortgage insurance premium discounts for borrowers whose incomes are less than 80% of the Area Median Income (AMI) where the subject property is located. These discounts apply to home buyers whose credit scores are 680+ and who complete a free online home ownership course. Lender pricing typically adjusts interest rates higher for borrowers with lower credit scores and those who are financing condos using loan amounts greater than 75% of the condo’s value. For Home Ready and Home Possible borrowers, these credit score and condo pricing adjustments are eliminated. Making these programs even more powerful is the fact that the discounts apply to borrowers who can make only a 3% down payment.

Saving enough cash for a down payment is one of the greatest challenges that homebuyers can face. Providing these interest rate and mortgage insurance discounts for loans with only a 3% down payment is a powerful tool for homebuyers without alot of available cash.

In the letter to FHFA, MBA requested that the agency expand Home Ready / Home Possible eligibility to borrowers with incomes up to 100% of the subject property’s AMI. MBA also requested that the income threshold be eliminated completely in low-income census tracts. This change would encourage homebuyers to seek properties in low-income areas. MBA president and CEO Robert Broeksmit stated, “Raising the AMI limits to expand access to these programs would still be beneficial as there are key features of Home Ready and Home Possible loans, such as a 3% down payment, that make homeownership attainable for historically underserved borrowers.”

I think an increase is warranted. When you look at 80% of the average income in an area versus the average home price, it eliminates many borrowers from qualifying for these programs. For example, in DeKalb County, the Home Ready / Home Possible annual income limit is $76,560. Some first-time buyers may qualify to buy an average-priced home, if they have no additional debt, but it is tight. By allowing the amount to go to 100%, more borrowers would qualify to purchase the average home price in the market with some additional debt. This is important as most first-time home buyers are in the Millennial/Gen Z demographic. These generations have additional student loan debt that previous generations didn’t have. Raising the income threshold to 100% AGI isn’t about buying more home. It is allowing first-time home buyers to purchase the average home in their area while having some additional debt obligations. If these programs are intended to help first-time home buyers, then let’s help them.

For reasons covered in a recent Mortgage Blog post, now is a great time to buy a home. If you want to buy a home in Georgia, give me a call and we can quickly determine which discounts you can obtain, and then set you on a path to home ownership.

Lower Rates and Easier Approvals for Some Home Buyers

In recent weeks, mortgage giants Fannie Mae and Freddie Mac have announced changes that will give better interest rate pricing to specific borrowers. A quick primer on interest rate pricing….lenders price loans based on risk factors. The greater the risk, typically the higher the interest rate. Key risk factors that can impact mortgage interest rates are:

• Credit score – the lower the borrower’s credit score, the greater the default risk, and therefore the interest rate is adjusted higher to compensate for the risk.
• Down payment – the lower the down payment, the greater the risk and therefore the interest rate is adjusted higher.
• Condominium – lenders consider condos to be riskier properties due to potential issues with the HOA. So the interest rate for a condo loan with a less than 25% down payment is adjusted higher.

In the mortgage industry, we call these “Loan Level Price Adjustments” or LLPA’s. Given that background, here are the recent changes that will help some borrowers.

Removal of the LLPA’s for first-time home buyers whose income is 100% or less than the Area Median Income (AMI) for their home purchase location. First-time home buyers include anyone who has not owned a home in the last three years. The AMI differs by geographic area, but a quick check of a southeast Atlanta address shows an AMI of $95,700. One caveat is that if the borrower’s qualifying credit score is less than 680, the interest rate will be adjusted higher to compensate for the additional credit risk. I think this new program is great news for potential home buyers who qualify. The biggest benefits will accrue to qualified borrowers with credit scores between 680 and 700 who want to buy a condo with a low down payment.

Another recent change affects the Home Ready / Home Possible programs offered by Fannie and Freddie. In the past, these programs removed the LLPA’s for borrowers who qualified: (i) credit score of 680 or higher, (ii) income less than or equal to 80% of the AMI ($76,560 in the area mentioned above), and (iii) down payment of less than 20%. These programs offer improved interest rate pricing and discounted mortgage insurance premiums for qualified borrowers. For these programs, the borrower does not have to be a first-time buyer. The recent change was eliminating the down payment requirement. I’ve had past customers who wanted to put 20% down, but who qualified for better pricing with a 19.5% down payment. With the change, borrowers making a 20%+ down payment will still obtain the discounted pricing if they meet the other program requirements. Note that these programs require the borrower to complete a free online homeownership course.

One other recent change that may help some borrowers is that Fannie and Freddie will now allow the use of cryptocurrency assets to cover a borrower’s down payment and closing costs. Before now, cryptocurrency assets were not allowed. To use cryptocurrency, the borrower must move the assets to a bank account (checking or savings) prior to closing and must provide documentation showing that the borrower legitimately owned the crypto assets and documenting the transfer from the crypto account to the bank account.

For reasons covered in a recent Mortgage Blog post, now is a great time to buy a home. And if you qualify for the new discounts or you have crypto accounts, the situation just got better for you. If you want to buy a home in Georgia, give me a call and we can quickly determine which discounts you can obtain, and then set you on a path to home ownership.