NMP - November 2019 - 54

special focus on A SALUTE TO THE HEROES OF HOMEOWNERSHIP a special focus on A

Homeownership Shouldn't Require Heroics
Underserved borrowers can become homeowners with the right lenders

urchasing your own
home has long
been considered
an integral part of
the American
Dream, but in
recent years, the homeownership
rate has stuttered. This past
second quarter, the
homeownership rate was 64.1
percent, down from 64.3 percent
in second quarter of 2018,
according to the U.S. Census
Bureau.1 This dip still represents
an uptick in homeownership from
the recent low of 62.9 percent
seen in the second quarter of
2016, but marks a significant
downturn from the high of 69.2
percent in the second quarter of
2004.
The drop-off in
homeownership can be
attributed to a raft of causes, but
credit markets certainly have
played a role. Although
homeownership is still a goal for
many Americans, a significant
portion of borrowers are shut out
by traditional lending's
heightened requirements.
According to Ellie Mae's
Origination Insight Report this
past September, the average
FICO score for all closed loans
was 737, with an average loanto-value ratio (LTV) of 77.2
Unfortunately, the credit score of
the average American falls well
below that standard. Experian
reports that the average score
was 680 in 2018, and if you
break those numbers down by
age group it becomes even more
clear why many are struggling to
buy a home today.3 For those
between 22- and 35-years of age
(where many first-time
homebuyers fall), the average
score was just 644. That score
accounts for just 1.68 percent of
conventional loans closed this
past September, according to
Ellie Mae.
Luckily, mortgage brokers and
originators can help. By working
with and serving those
underserved in the market,
mortgage professionals can help
make the homeownership dream
a reality for many who would
likely go unnoticed. From
government programs to new
programs for non-agency loan

P

NOVEMBER 2019 n National Mortgage Professional Magazine n

NationalMortgageProfessional.com

54

"By working with and serving those underserved in the market,
mortgage professionals can help make the homeownership dream a
reality for many who would likely go unnoticed.
From government programs to new programs for non-agency loan
products, some lenders are making a difference in the market-
if you know where to look."
products, some lenders are
making a difference in the
market-if you know where to
look.
Government products
Historically, government
products have been aimed at
helping those borrowers whom
conventional lenders look past.
The Federal Housing
Administration (FHA) has a
suite of loan-guarantee
programs offering quality
mortgages to borrowers with
low downpayments and
challenging credit scores, but
the government doesn't
actually originate these loans-
they just guarantee them. That
means brokers have to find
lenders that will actually
originate loans with just three
percent down or to borrowers
with credit scores as low as
500, and that's not as easy as
it should be.4 In fact, the

average FICO score for closed
FHA purchase loans in
September was 677, and just
3.55 percent of closed FHA loans
went to borrowers with credit
scores below 600, according to
Ellie Mae.5 There are, however,
some lenders that do offer these
loans to help the broad spectrum
of credit profiles, and mortgage
professionals should partner with
lenders experienced with these
products to help their clients into
the homes they desire.
In addition to FHA products,
the government also has more
specialized loan vehicles through
the Veterans Administration (VA)
and the U.S. Department of
Agriculture (USDA). Although a
smaller pool of borrowers are
eligible for these loans than FHA
products, they offer great terms
and provide help to many in the
underserved segment. VA loans
are for current U.S. service
members, veterans, certain

By Greg Austin

reservists and National Guard
members and eligible surviving
spouses of military members.
They offer a no downpayment
loan with no maximum loan
amount, but the VA does put a
limit on its guaranty. Without a
downpayment, borrowers can
take out mortgages up to
$484,350 in most of the U.S.6
There is also no minimum credit
score from the VA, but according
to Ellie Mae, the average FICO
score for closed VA loans was
711 this past September. Just
like with the FHA, every lender
has different parameters that
they will work within, and
originators may have to look for
lenders with loan requirements
that fit the profile with which they
are working. The USDA Rural
Development office also provides
home loans for qualified rural
districts throughout the U.S. But
what qualifies as "rural" may
surprise some mortgage
professionals, so investigating
these low-cost loans may be
worthwhile, particularly for lower
income borrowers who may be
eligible for a zero downpayment
product.7
Non-QM products
Another type of loan product that
may help many left out of the
homeownership dream is the
non-qualified mortgage (nonQM), which just means the loan
doesn't fall into the parameters
of loans backed by the FHA,
Fannie Mae or Freddie Mac.
These loans may be non-prime or
near-prime that can help
borrowers not eligible for
conventional or government
products, particularly those with
low credit scores (sometimes as
low as 500), high debt-to-income
ratios or recent credit events
(issues that range from a
previous foreclosure to late
payments). They are also helpful
to self-employed or contract
employees who don't have
traditional income streams and
documentation. With the surge in
the gig economy in particular,
many in younger age groups are
being left behind because
documenting their income stream
is more work than some lenders
are willing to do.


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NMP - November 2019

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