At last year’s Mortgage Bankers Association conference, much of the discussion centered around expanding mortgage credit access. The Qualified Mortgage rule, combined with other post-recession initiatives, has contributed to declining national rates of homeownership. Shortly thereafter, government-sponsored enterprise Freddie Mac released a new, multifaceted business initiative designed to address the same issue.
Christina Boyle, Freddie’s senior vice president and head of single-family sales and relationship management, outlined in the executive perspectives blog the organization’s approach for alleviating perhaps the single greatest roadblock facing prospective homebuyers: strict mortgage qualification standards. Since the housing market’s downturn, a wave of regulations have been imposed on mortgage lenders, with the Qualified Mortgage rule representing the most notable and unavoidable mandate for which they must account.
Now, as 2015 gets underway, President Barack Obama has emphasized he plans to publicly address housing market transitions earmarked as priorities for sometime. HousingWire reported Obama will touch on a variety of industry-related topics, from GSE reform and mortgage credit availability, during his lead-up tour to the State of the Union. Many analysts expect more rhetoric regarding the need to expand the pool of eligible homebuyers – particularly first-timers.
All the talk about alternatives
The alternative, non-QM loan space has gradually become more saturated, thanks in part to the success of products developed by the likes of Impac Mortgage Corp. Correspondent. Self-employed borrowers, foreign-national buyers and anyone else whose income may not be documented per the terms of QM guidelines stand better chances for approval than they did a year or two ago. In October, Mortgage News Daily piece delved into one of the MBA conference themes – that of expanded offerings. But the broader need to expand the U.S. homeowning population remains. As various recent consumer surveys have revealed, many Americans want to own homes but are either uninformed or ill-prepared for the mortgage application process. Even those who would qualify frequently encounter pitfalls related to unfamiliar terms, confusing paperwork or some combination therein.
For its part, Freddie Mac is committed to not only education, but the distribution of materials that will help make the homeownership dream a reality for more families and individuals. Boyle wrote that “at Freddie Mac, we’re focused on making home possible for more families nationwide by increasing their access to credit,” and then offered outlines for the three methods through which that overall goal will be approached.
Taking care of existing owners and expanding policies
First, Freddie is seeking to expand product offerings, or at least diversify its already-offered options. That means the company will emphasize educating existing homeowners about the home equity loan or line of credit options at their disposal, as well as stepping up advertisements for programs and materials catering to first-time buyers. The Home Possible mortgages serviced by Freddie Mac already offer down payment terms as low as 5 percent, and beginning in November, they will include secondary financing options for existing homeowners and those looking to build new properties. The program will include an allowance for gift funds, which can be used to meet minimum down-payment requirements, and expanded interest-rate buydown options for anyone seeking to lower their monthly payments.
The second stage of the new initiative, according to Boyle, is about clarifying policies as mortgage lending regulations evolve – and as lenders become more familiar with them. QM was first introduced in January 2014, so most underwriters, appraisers and loan officers are accustomed to navigating its parameters at this point. Others, such as brokers offering non-QM loans, have simply determined how to operate around it. Either way, as the dust has settled and the housing market’s recovery has taken on a more sustainable pace, the GSEs are looking to continue developing policies that reflect the evolving marketplace.
“We continue to adjust our policies to address market conditions and customer feedback without sacrificing our commitment to responsible homeownership,” wrote Boyle. “Changing regulation is enabling us to once again buy higher-priced mortgage loans that are 5/1 ARMs, giving our lenders additional options for homebuyers. Importantly, these loans have strong consumer protections because of the new rules put forth by the Consumer Financial Protection Bureau earlier this year.”
Clearing up misconceptions
Lastly, Freddie is focused on future education – a core tenet that facilitates the ultimate goal of improving the national rate of homeownership. Part of the outreach is ensuring more Americans understand the basic principles of the application process, including credit cleanup. Even as more products become available and standards may be relaxed, a minimum qualification score of 680 will remain necessary for most home loans.
In that interest, Freddie Mac is providing lenders with free customizable materials outlining the mortgage process, as well as criteria for qualification and down payment terms. Ultimately, an understanding of what’s expected is essential to efficiently and successfully navigating the home loan application gauntlet.
Of course, products such as those composing Impac Mortgage Corp. Correspondent’s AltQM™ line are designed to offer a little more flexibility. Credit cleanup takes time, and even with that time, many borrowers still don’t fit perfectly within the QM mold. Until a more case-by-case approach to credit approval is adopted by all lenders, alternative options – whether offered through Freddie’s programs or by brokers – will need to be explored.
Contact an Impac Mortgage Corp. Correspondent Relationship Manager at 888-850-0259, option1, for more information about our AltQM™ programs.