A Fannie Mae vice president wrote recently about some of the company's products designed to help existing homeowners move up or improve their homes if they are unable to sell. Jude Landis, VP for single family credit policy said the focus for fostering homeownership is traditionally on first-time buyers. In today's market however there is a need to confront the struggle many who are already homeowners face in trying to move up from the traditional starter home.
She said a Fannie Mae analysis shows repeat buyers decreased by 40 percent between 2002 and 2014. Even among those buyers with mid-tier credit scores of around 680 to 740 repeat home purchases have dropped dramatically. Landis speculated that in the case of homeowners with the credit eligibility to buy another home it could be low equity in the existing home that is holding them back.
Landis pointed to several loan products offered by Fannie Mae that could help lenders better serve these creditworthy homeowners who are "locked in" by insufficient equity. One would assist them to renovate rather than move, the other to convert their existing home to a rental property and purchase a new principal residence.
The HomeStyle Renovation loan allows homeowners to finance improvements to better adapt their home to lifestyle needs such as updating a kitchen, adding an addition, or retrofitting the home to accommodate an aging resident or one with special needs. These are modifications that can help the homeowner avoid the transaction costs of selling and buying and the expense of moving.
Alternatively Fannie Mae has made it easier to finance a new home while converting the existing residence to an income-generating rental. Updates to the company's Selling Guide change the ways in which underwriters can include rental income in the debt-to-income calculation.
Other Fannie Mae policies and programs expand home purchase opportunities for both first-time and repeat borrowers. A new program called HomeReady offers expanded eligibility to low and moderate-income creditworthy borrowers to finance homes in designated low-income, minority, and disaster-impacted communities. This product features 97 percent financing for purchases of single unit properties and 95 percent limited cash-out refinances. Also available are lower-than-standard levels of private mortgage insurance for high loan to value properties and some income flexibility.
HomeReady also includes a feature for extended-family households that allows lenders to consider income from a non-borrower household member, whether a relative or not, as a compensating factor in accepting a debt-to-income ratio up to 50 percent and also permits consideration of rental income from an accessory dwelling unit, such as a basement apartment, or from boarders. To help support affordability, standard risk-based pricing is waived on any HomeReady loan with an LTV ratio above 80 percent and a credit score of 680 or higher (a risk-based loan-level price adjustment cap of 1.50 percent applies for loans outside of these parameters).
High-cost areas such as parts of California and some major northeast cities are tough places to buy a starter home but have also shown some of the biggest drops in repeat buyers since 2002. Fannie Mae recently updated its high-balance loan policy to increase maximum loan to value ratios, aligning them with the standard eligibility up to 95 percent and removing many policy overlays that applied only to high-balance loan.
Finally, the recent expansion of the company's policy for non-occupant borrowers will allow the inclusion of non-occupant borrowers' income and liabilities for qualifying financing of one-to-four-unit owner-occupied properties without a separate calculation of DTI ratio for the occupying borrower.
Originally posted at http://www.mortgagenewsdaily.com By: Jann Swanson
New initiatives aimed at increasing access to credit and making it more affordable began to pay off in January according to Mike Fratantoni, the Mortgage Bankers Association's (MBA's) Chief Economist. MBA's Mortgage Credit Availability Index (MCAI) increased 1.8 percent in January, to 117.8. An increase in the index, which analyzes data from the AllRegs Market Clarity Product®, indicates that lending standards have loosened from those the previous month.
Fratantoni said, "Fannie Mae and Freddie Mac announced new 97 percent LTV loan programs in December aimed at expanding access to conventional financing for new and well-qualified homebuyer. Additionally, FHA announced reductions in mortgage insurance premiums (MIP). Both of these announcements were designed to provide consumers with better access to mortgage credit."
The MCAI has featured two components, the Conventional and the Government Mortgage Credit Availability Indices and this month MBA added two more, one measuring access to jumbo and the other to conforming loans. Fratantoni said that, "Growth in the jumbo loan market over the last few years has been a consistent and ongoing trend - with evidence of expansion on both the supply and demand sides of the market. These new component indices allow us to more precisely measure how credit availability is changing with regards to jumbo loan programs and their conforming (non-jumbo) counterparts."
All four of the components increased over the month. The Convention MCAI posted the largest increase at 3.1 percent and the Jumbo rose 1.9 percent. The Conforming index increased by 1.8 percent and the Government index which gauges FHA, VA, and USDA loan programs was up 0.9 percent.
Fratantoni said that since the announcement of the new GSE programs in December roughly 40 percent of investors have begun to offer versions of the Fannie Mae loan which became available immediately and Freddie Mac's which will be effective in March. "The conventional mortgage credit availability index increased three percent over the month as a result. Although the FHA MIP reductions went into effect January 26th, this initiative will be less likely to impact the MCAI, as it impacts pricing rather than availability of government credit.
All four component indexes are constructed using the same methodology as the Total MCAI and have the same base levels, March 2012=100.
Mortgage activity showed no signs of settling down from its rather wild and wooly behavior since the first of the year. Data from the Mortgage Bankers Association (MBA) was all over the place during the week ended January 30, apparently because of the new lower annual rates for FHA loans that went into effect during the week. Shares of applications shifted toward FHA loans and the outliers were in the non-adjusted data.
The MBA's seasonally adjusted Market Composite Index, a measure of mortgage application volume, increased a slight 1.3 percent during the week ended January 30. However, on an unadjusted basis that index was 15 percent higher than the week before.
Refinancing, which had been the primary driver of earlier index swings rose 3 percent compared to the week ended January 23.
Refinance Index vs 30 Yr Fixed
The seasonally adjusted Purchase Index was actually down, losing 2 percent but the unadjusted Purchase Index increased 16 percent week-over-week and was 3 percent higher than during the same week in 2014.
Purchase Index vs 30 Yr Fixed
Lynn Fisher, MBA's Vice President of Research and Economics said, "Following several weeks of already elevated refinance activity due to falling interest rates, FHA refinance applications increased 76.5 percent in response to a reduction in annual mortgage insurance premiums which took effect January 26. Conventional refinance volume was up only 0.5 percent for the week while VA refinance volume was down 24.3 percent. FHA purchase applications were also up 12.4 percent over the week prior, despite a decrease in purchase applications in the rest of the market."
The refinance share of mortgage activity decreased to 71 percent of total applications from 72 percent the previous week while the FHA share, buoyed by premium decreases, increased to 13.1 percent from 9.1 percent. The VA share mortgage applications decreased to 8.5 percent this week from 10.7 percent last week and USDA guaranteed mortgages lost 1 basis point to a 0.6 percent share.
"Both FHA and VA rates have essentially been pushed against the lower bound of 3.25% and haven't had the same sort of relative improvement as conventional rates," notes Mortgage News Daily's Matt Graham. "FHA was able to benefit from the MIP changes but VA, of course, was not."
Although the activity was more subdued on the interest rate front, those too were a bit mixed with two products reaching recent lows and another rising slightly. The 30-year fixed-rate mortgage (FRM) with conforming balances of $417,000 or less was at its lowest level since May 2013 at 3.79 percent with 0.19 point, and with a lower effective rate. The rate had been 3.83 percent with 0.26 point the previous week.
The average contract interest rate for jumbo 30-year FRM (balances greater than $417,000) was also back to May 2013 levels, falling by 5 basis points to 3.82 percent. Points decreased to 0.22 from 0.33 and the effective rate decreased from the previous week.
The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 3.69 percent from 3.71 percent, with points remaining unchanged at 0.07. The effective rate also decreased.
Fifteen-year FRM had an average contract rate of 3.14 percent, down 1 basis point from the previous week while points increased to 0.31 from 0.28. The effective rate was unchanged.
The rate for 5/1 adjustable rate mortgages (ARMs) increased to 3.03 percent from 2.96 percent, with points decreasing to 0.39 from 0.42 and the effective rate rose. The ARM share of application activity decreased to 5.3 percent of total applications from 5.7 percent the week before.
Data on applications and rates is gathered by MBA from its Weekly Mortgage Application Survey which has been conducted since 1990 and covers over 75 percent of all U.S. retail residential mortgage applications. Respondents include mortgage bankers, commercial banks and thrifts. Base period and value for all indexes is March 16, 1990=100.and interest rates assume a mortgage with an 80 percent loan to value ration and points that include the origination fee.