HUD AND MBA ANNOUNCE PASSPORT TO HOMEOWNERSHIP INITIATIVE TO EDUCATE CONSUMERS ABOUT THE MORTGAGE LENDING PROCESS

CHARLOTTESVILLE, VA - The U.S. Department of Housing and Urban Development and the Mortgage Bankers Association of America today announced a joint initiative to educate consumers about the mortgage lending process, in a move to help more Americans become homeowners.

Under the joint initiative, known as Passport to Homeownership, HUD and MBA will carry out a consumer education campaign to increase homeownership by helping people better understand all aspects of the home loan process.

HUD Secretary Andrew Cuomo and MBA President Christopher J. Sumner announced the Passport to Homeownership today at the National Homeownership Summit at the University of Virginia in Charlottesville, which was sponsored by the University and MBA.

"Buying a home is the most expensive, most complicated, and most intimidating financial transaction most Americans ever make," Cuomo said. "Some people who could qualify for mortgages don't apply because they fear the process is too hard and fear they'll be turned down. We'll use our education campaign to demystify the homebuying process and end these fears, so we can transform homeownership from a distant dream into a reality for more families."

A key component of the new initiative will explain to consumers how a computerized HUD system known as automated underwriting will evaluate applications for Federal Housing Administration mortgage insurance. FHA is part of HUD.

Cuomo said FHA's automated underwriting system will produce an electronic score card of a prospective borrower's qualifications for a mortgage that will be fully open, transparent and understandable.

"If a person doesn't get FHA insurance, our new system will explain why," Cuomo said. "In effect, FHA's new automated underwriting system will be like a glass box, exposed to the light of day and public scrutiny."

In contrast, some automated underwriting systems in use today are known as "black boxes" because outsiders aren't allowed to examine their inner workings.

"Our new automated underwriting system will operate more quickly, openly, accurately and fairly to determine a person's qualifications for FHA mortgage insurance, and will help more families become homeowners," Cuomo said.

"The mortgage lending process is too confusing for the average homebuying consumer," Sumner said. "The MBA is pleased to partner with HUD and Secretary Cuomo in this effort to demystify the mortgage lending process. The core of the HUD-MBA initiative is to empower consumers with the information they need to make educated financial decisions, which will place them in a position to become homeowners. "

Under the Passport to Homeownership, HUD and MBA will together spend more than $1 million on advertising and on brochures written in plain language to tell consumers how they can get FHA mortgage insurance, how FHA's automated underwriting system works, how to maintain good credit, how to save for a downpayment, and how to successfully navigate through the entire home loan process.

In addition, both organizations will post easily understood information on their websites to make home financing simpler and less confusing. Labor unions and large employers will be asked to cooperate in distributing mortgage information to members and employees.

The new underwriting process will log onto credit databases and perform a computerized evaluation of a homebuyer's loan request, credit history, income, assets and debts to determine if the person qualifies for a mortgage loan - all in just two minutes. The same evaluation process takes about four weeks when performed by a lender without the aid of a computerized credit evaluation program.

After homebuyers get their two-minute evaluation for FHA insurance, they will be told if they must submit any additional information to verify their income and assets.

FHA's computerized credit evaluation system will not reject any applicants. Instead, consumers not immediately accepted as being qualified for FHA mortgage insurance will be referred to people on the staff of lenders who will further review, analyze and document a consumer's credit qualifications. In addition, all referrals by the system will highlight specific areas of concern that must be corrected in order to achieve an acceptance.

"We won't allow computers to make the final decision denying anyone FHA mortgage insurance," Cuomo said. "An old-fashioned financial evaluation system known as a human being will make that decision. We'll also explain the reasons for all rejections, because people have a right to know why they were turned down and because we want to help people improve their credit qualifications."

FHA's automated underwriting system is objective and does not take race or ethnicity into account, so it will help ensure that lending practices are non-discriminatory.

With the help of FHA's programs and innovative efforts by mortgage lenders, America's homeownership rate rose to a record high in the third quarter of 1999, with 67 percent of all families owning their homes. A total of 70.5 million American families owned homes in the third quarter - more than at any time in American history. A total of 8.7 million more families owned homes in the third quarter of this year than when President Clinton took office in 1993, when the homeownership rate stood at 64 percent.

However, a homeownership gap continues to divide whites and minorities. In the third quarter of 1999, 73.5 percent of white households were homeowners, compared with 47 percent of black households, 45.5 percent of Hispanic households, and 54.8 percent of other minority households, including Asians and American Indians.

MBA is a national association representing about 3,100 companies including all elements of real estate finance: mortgage companies, mortgage brokers, commercial banks, thrifts, life insurance companies and others in the mortgage lending field.

FHA has insured more than 6.8 million home mortgages since 1993 - including many for minorities and city residents. By protecting lenders from losing money on a mortgage if a homebuyer defaults, FHA mortgage insurance enables consumers to qualify for mortgages they might not otherwise receive. For many consumers, approval of FHA mortgage insurance by lenders using the new HUD automated underwriting system will give them the ability to get the mortgages they need to buy homes.

FHA-insured mortgages benefit homebuyers in these ways:

• Downpayments as low as 3 percent are required - lower than the minimum that lenders require for non-FHA mortgages. High downpayments are a major roadblock to homeownership.

• Homebuyers can borrow closing costs in their mortgages - something often not permitted with many non-FHA mortgages.

• FHA's requirements for homebuyer credit ratings are more flexible than those set by many lenders for non-FHA borrowers.

• FHA permits homebuyers to use gifts from family members and non-profit groups to make their downpayments, while conventional loans generally require homebuyers to come up with downpayments on their own.

• FHA permits a borrower to carry more debt than a private mortgage insurer would allow.

Content Archived: January 20, 2009