FHFA New Credit Score Rules

 The Federal Housing Finance Agency will have new guidelines for credit score models for lenders. These new guidelines will have a positive impact on many that were not approved for a loan in the past. Freddie Mac and Fannie Mae will be given the new guidelines to follow when determining if they can accept a mortgage from a lender.

Money is freed up by Freddie Mac and Fannie Mae when the agencies purchase mortgages from lenders. The lenders will then have more money freed to make home loans. Currently, Freddie Mac and Fannie Mae can only purchase conventional loans that meet certain criteria. These scores and criteria are determined by FHFA and mortgage lenders have been using FICO scores 2, 4, and 5 (these are considered outdated models).

“The mortgage industry didn’t have a choice in the matter. They were essentially forced to use older FICO scores by the FHFA. All other types of lenders have long since moved on from those legacy scoring models,” explains credit expert John Ulzheimer.

Under the new guidelines, lenders can use more up-to-date FICO scores, FICO 10T, and VantageScore. VantageScore is FICO’s direct competitor. Lenders will now only have to proved credit reports for two of the three major credit bureaus. FICO 10T and VantageScore being picked up by the new guidelines is the biggest change in a positive way.

These two sources will gather data from more sources included payments for rent, utilities or cell phone service. VantageScore also requires a shorter credit history, FICO has a six month-minimum for credit history. The source also has scores that show up for 37 million Americans that do not show up under FICO. Surprisingly these that show up only on VantageScore, more than 13 million have a credit score above 620.

Using the updated credit score modeling will also help with the racial homeownership gap. According to the Urban Institute around 53 million Americans do not have FICO scores (when using the older scoring models). Out of these 53 million, 29.5% of Black households and 27.3% of Hispanic households compared to only 16.7% of white households.

If you are in the market for a new home, check with lenders to see when you can take advantage of this updated policy. Meanwhile, choose a Realtor who can help you with the homebuying process.

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Appraisal System Updating Is a Top Priority to Lenders

 

The hot housing market has changed many things and one thing lenders want to see is appraisal modernization. A survey published in May by Fannie Mae, found that mortgage lenders see value in appraisal modernization, specifically in the implementation of non-traditional appraisals and inspection-based appraisal waivers. This was based on a survey conducted on senior mortgage executives. The survey concluded that 188 out of 200 (94%) feel that appraisal modernization will help reduce the loan origination cycle time.

The appraisal process time is one of the biggest obstacles the mortgage industry is facing. Right now, it is causing huge delays and higher costs. There are also fewer appraisers who are experienced in understanding more complex collateral assignments. Currently, the appraisers cannot get to all the houses that need to be appraised. Appraisal costs are going up due to the impact this has on the industry. The modernization will also amplify appraisal capacity and lower borrowing costs.

The survey also shed light on some other issues that are even more important for the lending industry. A digital portal for consumer loan applications was number one or two on many lenders' lists. There were also concerns mentioned about roadblocks that challenged adapting new modernization tools. These were speed or lack of speed, of integrating these tools with loan originating systems.

The pandemic also has played a hand in the issues the industry is facing when it comes to appraisals. Hybrid appraisals are now allowed under the FHFA (Federal Housing Financing Agency). Appraisers can now conduct them remotely using public records (tax appraisals and listings) for purchase loans. HUD (Department of Housing and Urban Development) extended its timeline on using hybrid appraisals because of the impact from the pandemic.

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THERE ARE TONS OF FINANCIAL BENEFITS IN HOMEOWNERSHIP

According to a survey done by Fannie Mae, homeownership is highly rated by consumers. In fact, they continue to see homes as a safe, high potential investment.  The Fannie Mae Q4 2020 National Housing Survey reported that consumers believe it is just as safe to invest in a home as savings and money market accounts.

The survey found that consumers relayed that the top four financial benefits of homeownership were a better chance of saving for retirement, the best investment plan, the chance to be better off financially and the chance to build up wealth. Of these four benefits, 88% of consumers felt it gave a better chance of saving for retirement, 87% felt it was the best investment plan, 85% felt it gave them a chance to be better off financially and 85% believe homeownership presented them a chance to build up wealth.

Consumers’ opinions are right on the money so to speak. The Federal Reserve’s Survey of Consumer Finances revealed that owning a home is a “clear financial benefit.” In the survey, it was reported that those who owned a home vs renting had a forty times higher net worth. As the housing market grows stronger, the gap between renters’ and homeowners’ net worth grows farther apart. Corelogic reported that the equity in homeownership grew by $26,300 over the last year which widened this gap even further.

Keeping Current Matters released data showing the gap in the net worth in every income category between homeowners and renters. For a homeowner making under $26,000 their net worth is $103,000 but a renter’s net worth is only reported at 1,000, homeowner’s making $26,000 – $46,000 their net worth is $140,000 and a renter making the same income net worth is $6,000, homeowners making $46,000 – $74,000 have a net worth of $190,000 while renters only have $11,000, homeowners making $74,000 – $127,000 have a net worth of $261,000 and renters only $34,000, homeowners making $127,000 – $192,000 have a net worth of $433,000 while renters making the same income have a net worth of $117,000 and homeowners making over $192,000 have a net worth of $1.66M while renters only $705,000.

Homeownership is a solid financial investment opportunity but should you choose to purchase a home, the best thing to do is use a local real estate professional. A Realtor can help you take the next steps towards homeownership.

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High-Performance Home Appraisal Guide

Photo by John Tekeridis from Pexels

  

High-performance homes are becoming more and more popular, but is the market up to date with appraisals for these specialty homes? Builders, sales agents and homeowners can take several steps to ensure local appraisers, lenders and the general public about what makes your durable, energy-efficient, healthier home stand out from the competition.

Step 1:

Make sure to highlight the home's high-performance features when marketing the home. This can be done by advertising, educating, teaching, highlighting and displaying these high-performance features.

When advertising, make sure to include the features that make the home more comfortable, energy-efficient and water-efficient. Point out how these will help lower utility bills. For tips on verbiage to use or ideas on what to highlight, check out Home Performance Counts.

Educate and teach others about the results of an Energy Rating Index (ERI) which includes the Home Energy Rating System (HERS) score or Home Energy Score (HES). All sales agents and sales staff should know what an ERI, HERS and/or HES rating means and how to articulate the ratings to consumers and others in the industry.

Features such as independently verified green home certifications should be highlighted in the marketing materials. The National Green Building Standard is a great example that should be put on flyers and web pages. During open houses, display the ERI, HERS or HES ratings and an explanation of the potential energy savings. Also, display certification plaques that show the home is approved by the National Green Building Standard.

Step 2:

Buyers should choose a lender who is familiar with high-performance homes. Local mortgage lenders who have a separate appraisal panel of trained professionals with experience valuing high-performance homes are critical to get the value your above-code home deserves. It is important for a lender to choose an appraiser that is on the Appraisal Institute’s green registry. This way both the lender and appraiser will not be hesitant to appraise the home higher for its energy-efficient upgrades.

Step 3:

The sales contract for a high-performance home should include Residential Green and Energy Efficient Addendum. What this means is the high-performance features that are behind the walls and cannot be seen will be included. This documentation will help the appraiser fully understand the higher price when it comes to an above-code home.

Step 4:

Just like interviewing a sales agent, interview the appraiser before you choose them to appraise the home. Not only ask about their appraisal experience but also ask if they are familiar with ERI scores and HERS ratings. Find out what classes or courses they have taken on high-performance valuation.  The Federal Housing Administration, the U.S. Department of Veterans Affairs, Fannie Mae and Freddie Mac all require that the appraiser has requisite knowledge prior to accepting the assignment, and the only way to enforce that is to ask about their knowledge and experience upfront.

Including these steps in the appraisal process will ensure a high-performance home will be given the right amount the home is worth. Choosing a sales agent who is versed in energy-efficient homes will help buyers with the home buying process.

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Affordable Housing Funds Receive $1 Billion

 The current housing market is on fire and will have even more support with the $1.09 billion disbursements for Fannie Mae and Freddie Mac. The Federal Housing Finance Agency (FHFA) has never authorized such a large amount. In fact, this is double what was given last year.

The Federal Housing Finance Agency (FHFA) was established in 2008. The goal for the agency is to make sure that regulated institutions make good on their commitment. It is also there for a safe place for liquidity and funding for the housing finance market throughout the economic cycle.

Along with the agency, as part of the Housing and Economic Recovery Act (HERA) of 2008, congress created the Housing Trust Fund (HTF) and Capital Magnet Fund (CMF). Their purpose is to support affordable housing. HERA directed the Enterprises to set aside 4.2 basis points of each dollar of unpaid principal balance of its total new business purchases and then allocate those reserved funds following each fiscal year for. The funding is divided with the HTF receiving 65% and the CMF receiving 35%.For 2021 more than $700 million will be given to the U.S. Department of Housing and Urban Development (HUD) and the Department of the Treasury for the CMF will receive $383 million.

This is good news for the housing industry altogether. Now is a great time to purchase a home if you are in the market or thinking of buying a home.

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