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Or contact your local HUD officeAugust 20, 1996

Financing the American Dream details 10 steps to raise homeownership rate in U.S.

EAST LANSING, MI -- A new report issued today documents the steps that leading lenders are taking to help thousands more working families become homeowners.

In releasing the new Department of Housing and Urban Development report, Financing the American Dream: Best Practices in Affordable Homeownership Lending, Secretary Henry G. Cisneros praised the innovative steps many lenders have taken. Cisneros urged continued efforts to make affordable homeownership loans to more first-time homebuyers.

"Affordable homeownership programs are allowing millions of American families, many of them young and minority families of modest means, to achieve a homeownership dream they never thought they'd reach," Cisneros said at a Midwest Homeownership Summit attended by more than 800 housing, real estate and financial industry professionals.

"With first-time homebuyers making up a larger share of the market, lenders are discovering that not only does affordable lending make sense -- it makes dollars and cents," Cisneros said.

After years of stagnation, the homeownership rate is now at a 15 year high of 65.4 percent -- up 1.6 percent in just the past two years. First-time homebuyers are the driving force behind much of this expansion, Cisneros said. Studies show that the market share of first-time homebuyers grew from about 40 percent of all home sales in the 1980s to 47 percent in 1994-1995.

President Clinton has set a goal of adding 8 million new homeowners to the homeownership rolls and raising the national homeownership rate to an all-time high by the end of the year 2000.

Linda Bissell of East Lansing, Assistant Vice President of Flagstar Bank and Immediate Past President of the Mortgage Bankers Association of Michigan, said that her firm offers affordable products appealing to first-time homebuyers who may have a limited ability to save for a downpayment.

"Many of our borrowers assume that they need 20 percent down, when in fact we can help purchase a home for as little as 3 percent down," Bissell said. "Funds for the remaining 2 percent and other costs may come from grants, gifts and even lender-financing."

Flagstar also participates in a variety of homebuyer education programs, including the annual Homebuyer Fair at the University of Detroit. The firm looks at every potential borrower, even those who do not immediately qualify for a loan, as a future customer. Loan officers provide counseling and guidance for these potential borrowers.

Affordable homeownership loan programs are designed to reach out to underserved families and communities and are offered by many lending institutions. The Community Reinvestment Act and the Federal Housing Enterprise Financial Safety and Security Act provided additional incentives to the home mortgage lending industry to expand these programs.

Generally, affordable lending initiatives follow one of three courses:

  • Non-traditional loan programs involving more flexible home mortgage underwriting guidelines, including provisions such as loan-to-value ratios greater than 95 percent, non-traditional evaluation of credit, waivers of reserve requirements at the time of closing, and more liberal debt-to-income ratios. These programs are generally for borrowers at or below median income for a metropolitan area.

  • Targeted loan programs, traditional loans made under programs targeted at meeting the homeownership needs of low and moderate-income borrowers and those in geographically underserved areas. These loans may include state housing finance agency mortgage revenue bonds, mortgage credit certificates and other programs targeted at first-time homebuyers with somewhat higher income than the metropolitan median.

  • Traditional loan programs falling within conventional underwriting guidelines and made to low- and moderate-income borrowers.

Today's HUD report was prepared following a series of forums that HUD cosponsored on affordable homeownership lending. The report documents ten "best practices" in the lending community and provides examples of real-life applications of these practices.

Practices helping set the stage for affordable lending:

    Partnering: Establishing alliances between non-profit and profit-making organizations to further affordable homeownership.

    Flexibility: A focus in the lending community on how to meet the needs of non-traditional and underserved borrowers.

    Understanding the Market: Determining the needs of borrowers and developing lending products to meet these needs.

Practices to help potential low-to-moderate income homebuyers prepare for and become homeowners include:

    Homeownership Education: Classroom instruction for potential buyers on the responsibilities and opportunities of homeownership.

    Homeownership Counseling: One-on-one counseling sessions with potential homeowners to assess the buyer's financial situation and provide personalized advice on homeownership opportunities.

    Affordable housing loan products: Lenders offer home mortgage loan products that are designed to meet the unique needs of first-time and low and moderate-income homebuyers.

Practices lenders use to protect their investment and maintain the stability of loans made to first-time and low and moderate- income homebuyers:

    Prudent Underwriting Criteria: Careful application of non- traditional underwriting criteria and consideration of compensating factors to ensure a sound loan is made.

    Enhanced Servicing: Follow-up mortgage loan servicing techniques designed to support borrowers before their loan become delinquent.

    Early Intervention: Collection techniques to assist borrowers if their home mortgage loan has become delinquent.

    Default Mitigation: Techniques affordable homeownership lenders use to avoid foreclosure on severely delinquent loans.

Cisneros said that the report, Financing the American Dream: Best Practices in Affordable Homeownership Lending, will be distributed to lenders, individuals involved in the secondary mortgage market, and participants in past HUD forums on providing greater access to home loans for first-time and low-to-moderate income homebuyers. It may also be requested by calling the HUD User line at 1/800-245-2691.



Content Archived: January 20, 2009

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