Buying a single family home can be difficult when the size of your single family includes multiple generations, aunts, cousins, grandmas . . . and even more so when you share finances with several adults under one roof. That’s why Fannie Mae is overhauling its underwriting standards under a newly revamped program named HomeReady designed for low- and middle-income families who live with extended family.
The New York Times reports “lenders will now be able to qualify borrowers by including some income generated by non-borrowers living in the household.” This can include income from non-occupant co-borrowers such as parents, and the down payment requirement is as little as 3 percent. The program is also being expanded to include people who are not first time home buyers according to Jonathan Lawless, Fannie Mae’s vice president for underwriting and pricing analytics. “By expanding eligibility to repeat buyers, Fannie Mae hopes to help homeowners who lost wealth (in the form of home equity) when property values plummeted.”
This move hopes to shore up neighborhoods hit hardest by the recession and help regrow community investment. Low income and minority neighborhoods were among the hardest hit during the housing crash, in part because they were targeted by predatory lenders, and recent studies have found that they have recovered at a much slower rate. Converting people from renters to buyers works for the community in a two fold manner, by putting more equity into the financial portfolios of residents and boosting the value of homes, which of course boosts the personal wealth of the owner. And with rents rising in most major cities and renters spending upwards of 30 percent of their salary or more on housing yearly, participants will hopefully see a marked improvement in their total bottom line as well. The HomeReady program guidelines are designed to reach out to the 19 percent of African American and 24 percent of Hispanic households who live with extended family and extend stable, government-insured and regulated lending opportunities.
One of the big question marks hanging over the program is how many lenders will choose to participate. To abate these anxieties, the program mandates that borrowers go through a home ownership education course online that takes four to six hours. The underwriting standards for the program are also designed to ensure that only stable borrowers who can repay their loans will receive them. These measures are in stark contrast to the period building up towards the housing crash, where lenders would prey on low- and lower-middle- income people and ended up wiping whole neighborhoods clean of their assets.
One factor that doesn’t get addressed in the New York Times piece that I feel merits discussion as well is one about the success that loan programs for low income people’s like this could have at curbing gentrification in low-income minority neighborhoods when implemented on a wider scale. When people own their homes, they cycle of rising rents is broken and they aren’t forced out by encroaching waves of newcomers. In time, people end up saving money on their housing costs—which means more spending money going into the local economy—and building an investment they can use as collateral for loans.