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Mortgage rules help minority borrowers
By LEW SICHELMAN, Special to the Times ATLANTA -- With three of every five first-time home buyers expected to be racial and ethnic minorities over the remainder of the decade, major suppliers of mortgage money are rolling out new products at a rapid pace so lenders can meet their borrower's needs. Freddie Mac is eliminating a rule that requires borrowers to be U.S. citizens and is offering an improved version of the old lease-purchase program. Meanwhile, Fannie Mae is in the market with an interest-only loan that can save a buyer with a $150,000 mortgage almost $100 a month. "We're entering an era of mass customization to meet the needs of underserved markets," Fannie Mae chairman Franklin Raines said at the National Association of Home Builders' annual convention here this month. "There will be a lot of ways to reach this new constituency," added Craig Nickerson, vice president of community lending at Freddie Mac. Freddie Mac and Fannie Mae don't loan money directly to consumers. Rather, the two federally chartered financial institutions keep the funds flowing by purchasing mortgages made by local lenders and packaging them into securities that are sold to investors worldwide. Nickerson told the convention that nearly 60 percent of all first-time buyers between now and 2010 will be young minorities and immigrants. Hispanic and Asian households will account for the largest share of the growth, according to Nickerson, as 27 percent of total household growth in the decade will come from immigration. Most of the Hispanics are expected to come from Mexico. To reach permanent aliens and nonresident aliens (citizens of other countries who live in the United States but also have a home outside the U.S.), Freddie Mac no longer demands that borrowers be American citizens. Now, anyone who is a lawful resident of this country can be eligible for a mortgage. In addition, geographic restrictions on owner-occupied, one- and two-family units have been removed. "We're changing our underwriting across the board, not just in certain areas," Nickerson said. Freddie Mac also will now lend up to 105 percent of the value of the property, accept cash on hand (sometimes known as "mattress money") as a source of funds and allow borrowers to use money from boarders as part of the income needed to qualify for the mortgage. For credit-impaired borrowers with little or no cash, the company is improving on the old lease-purchase scheme by giving home buyers full credit for the monthly payments and allowing them to reap all the benefit of appreciation. Freddie's 21st Century Lease Purchase program is both a credit and a down payment solution, Nickerson said. "No down payment is required, ever," he said. "And it helps borrowers who have serious credit issues or no credit standing whatsoever." Under the program, a nonprofit organization buys the house and leases it to the future owner at a rent that's close to the agency's mortgage payment. Then, after three years, the tenant assumes the mortgage as a 27-year loan and is credited with all equity that has accrued through appreciation and paying down the loan. The lease-purchase loan is available now only in California and parts of Virginia, but the company plans to expand coverage nationally over the next two years. For the first time, Freddie Mac also is allowing builders to contribute up to 3 percent of the purchase price on behalf of a buyer. The company is still "not real comfortable" with permitting sellers to put up money for their buyers, but Nickerson said it is now willing to treat a grant from the builder as borrower cash. Meanwhile, Fannie Mae has a new and innovative interest-only mortgage that allows home buyers to expand their purchasing power. With the Interest First Mortgage, borrowers pay just the interest for the first 15 years of the mortgage, reported Howard Nelson, vice president of customization. On a $150,000 mortgage at 7.125 percent, the buyer's payment would be $95 a month lower than it would be on a 30-year fixed loan of the same amount at 6.875 percent. But if the borrower decided to make a payment to principal, the next month's payment would be even lower. As the loan amount increases, Nelson said, the savings would be even more significant: $126 on a $200,000 mortgage, $158 on a $250,000 loan and $190 on a $300,000 mortgage. - Lew Sichelman is a syndicated housing columnist who lives in Maryland.
 © 2006 • All Rights Reserved • St. Petersburg Times
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