Written By: Joel Palmer, Op-Ed Writer
Mortgage processors and underwriters, as well as the rest of the mortgage lending industry, seem to be caught in a Catch-22 regarding how easy or difficult it is to get a home loan.
The housing crisis of 2008 was blamed in large part to loose mortgage lending standards. Credit standards were subsequently tightened. As the economy has improved, government agencies, government sponsored enterprises (GSEs) and mortgage lenders have attempted to make mortgage loans more accessible while trying to avoid the mistakes of the previous decade.
Some argue that credit standards are still too tight. Other signs point to them becoming too lenient again and potentially leading to a repeat of the housing crisis.
Earlier this month, the Urban Institute released its Housing Credit Availability Index for the fourth quarter of 2017. The index measures the percentage of home purchase loans that are likely to default, which provides an indication of mortgage loan accessibility; the lower the index, the tighter the lending standards and the more difficult it is to obtain financing.
The latest index is at its highest level since 2013. Furthermore, mortgage credit availability in the GSE channel—Fannie Mae and Freddie Mac—has been at the highest level since its low in 2011.
Yet even with this easing, the Urban Institute says mortgages are still relatively difficult to obtain.
On the other hand, a recent move to accept higher debt-to-income (DTI) ratios — from 45 percent to 50 percent — forced Fannie Mae to alter its underwriting guidelines. That’s because in the fourth quarter of last year, 20 percent of Fannie’s mortgage acquisitions had a DTI higher than 45 percent. For all of 2017, the number was 10 percent. For the full year of 2016, only 5 percent of Fannie’s mortgage purchases had a 45-percent or higher DTI.
Here are other recent examples of how the industry is trying to make it easier for prospective home buyers to obtain a mortgage:
Duty to Serve plans.Fannie Mae and Freddie Macare in the first months of implementing their Duty to Serve Underserved Markets plans, as required by the Housing and Economic Recovery Act of 2008.
Each of the plans contains a list of initiatives aimed at three areas identified as key to making housing more accessible: affordable housing preservation, rural housing, and manufactured housing.
The overall goal of the Duty to Serve plans is to increase liquidity and provide long-term stability in the three underserved markets. Objectives focus on research, product development and increasing loan purchases, as well as standardization and educational efforts.
Emphasis on manufactured housing. In January, the U.S. Department of Housing and Urban Development (HUD) announced a “top-to-bottom review” of rules governing manufactured housing. The review was being done, in part, “to facilitate the availability of affordable manufactured homes.”
Last fall, Fannie Mae announced a partnership with the New Hampshire Housing Finance Authority (NHHFA) to provide affordable finance options to Fannie-approved Resident Owned Communities (ROCs) in the state. The program could eventually be duplicated in other states to improve access to mortgage financing for manufactured housing.
More flexibility with condo loans. A January Selling Guide update expanded Fannie’s project-related litigation policy to provide lenders more flexibility in delivering loans secured by units or shares in condo and co-op projects that are the subject of minor litigation.
Fannie Mae now allows lenders to fund closing cost and prepaid fees. A Selling Guide update released several weeks ago clarified that lender-sourced contributions to fund closing costs and prepaid fees that are normally the responsibility of the borrower are permitted under certain circumstances.
Helping buyers with student loan debt. A year ago, Fannie announced an initiative to help homebuyers with student loan debt qualify for mortgages. The program included a student loan cash-out refinance option, the exclusion of debt paid by somebody else from a borrower’s debt-to-income ratio, and the ability of lenders to accept student loan payment information on credit reports.
About the Author
As an NAMU® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.