Academic journal article ABA Banking Journal

Mortgages without Debt Ratios?

Academic journal article ABA Banking Journal

Mortgages without Debt Ratios?

Article excerpt

Typically when mortgage lenders have attempted to meet the needs of low- and moderate-income borrowers, they have adapted the credit framework of their existing products. For example, to be more flexible many lenders have permitted higher debt-to-income ratios and lower downpayments.

A pilot effort announced during last fall's Mortgage Bankers Association annual convention takes a substantially different approach. Whereas the traditional approach to qualifying borrowers relies on analyzing debt ratios, the pilot relies on an analysis of how an applicant has managed housing and other debt given their current level of income. It will also take into account both the anticipated costs and tax benefits of homeownership.

Participating in this experiment in "cash-flow" mortgage lending are Sears Mortgage Corp., which will make the loans; Mortgage Guaranty Insurance Corp., which will provide private mortgage insurance; and the Federal Home Loan Mortgage Corp., which will purchase the mortgages from Sears by swapping them for mortgage-backed securities. Freddie Mac plans to hold the loans in its own portfolio. Up to 1,000 30-year fixed-rate loans will be made in five cities and their environs: Atlanta, Boston, Chicago, Los Angeles, and St. Louis.

The pilot should be a particular benefit to first-time home-buyers who are currently renting, according to David Glenn, Freddie Mac's president and chief operating officer. It is expected to help borrowers get into their first home in some cases and enable others to purchase better housing than they might have been able to borrow for under traditional mortgage underwriting practices. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.