New CFPB Qualified Mortgage Rules Do Leave Options for “Non”qualified Borrowers

Nick Wormald, a 29-year-old plumber with good credit, said he was shut out of the housing rebound until he asked the government for help.

Wormald, who bought a three-bedroom home in Haverhill, Massachusetts, for $215,000 in December, was required to provide a down payment of only 3 percent. That’s far below the standard 20 percent down, which he couldn’t afford. And he was spared the burden of buying mortgage insurance. The plumber got the fixed-rate deal through MassHousing, his state’s housing-finance agency, or HFA.

“It’s good that I didn’t have to exhaust all my funds,” said Wormald, who had to spend about 40 percent of his retirement savings for the down payment. “My family helped me out with bed sheets and things for the house. They’re great people but nobody has got $10,000 kicking around to give.”

Every state has one of these little-known agencies, which legislatures set up in the 1960s and 1970s to promote affordable housing. [California]  Now, as regulators tighten mortgage rules and big banks resist lending to riskier middle-income Americans, HFAs across the U.S. are rapidly expanding to restore the fading dream of homeownership. The state agencies got a boost from the Consumer Financial Protection Bureau, which exempted them from stricter mortgage regulations that it rolled out this month.

Some groups like MassHousing buy mortgages from lenders and send them to government-sponsored Fannie Mae to package into securities that the HFAs then sell to investors. The Boston-based group more than doubled its mortgage volume to an all-time high of $1.25 billion in the year ending in June, fueled by the introduction of mortgages that require no insurance.

Record Lending

HFAs in states including California, Idaho, Illinois, Minnesota, New Jersey, Texas and Virginia also are expanding. The Illinois Housing Development Authority funded more than 3,000 mortgages in 2013, a record, up 60 percent from the prior year. In California, loans with down payment assistance increased 29 percent to a record 6,311 in fiscal 2013 from a year earlier.

“We believe that housing-finance agencies will be able to play a bigger role in whatever the restructured mortgage market looks like in the future,” MassHousing Executive Director Tom Gleason said. “HFAs have already demonstrated that they’re ready to step up to the plate to absorb the risk associated with low down payment borrowers.”

The growth in lending may also help bolster the housing recovery, which hasn’t included many first-time buyers like Wormald. The homeownership rate for U.S. families earning less than the median income — about $51,000 — was 48.5 percent in the third quarter. That compares with 53 percent during the peak of the housing boom in 2006, according to Census Bureau.   (Read more —>) 

courtesy of:  http://www.bloomberg.com/news/

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