Fannie Mae, the federally sanctioned mortgage giant, has just announced a new program that shows that they learned absolutely nothing from the last real estate meltdown. This new program, called “HomeReady” in a fit of hopeful and wishful thinking, reduces loan underwriting standards.
It’s designed to allow “underserved” individuals the opportunity to buy a home – focused primarily on low-income and minority borrowers. Other than the last group of under qualified borrower-friendly loans and regulations from the mid-2000s, it’s the stupidest real estate loan idea that I’ve ever seen.
The new loan “features” reduced credit score requirements and allows borrowed funds for a down payment. Most significantly, it allows using the income from non-qualified residents of the home for debt ratio calculations – their income is included but they won’t be legally obligated by the terms of the loan nor will their creditworthiness be evaluated.
The whole point of the loan is to increase opportunities to buy a home. The underlying purpose, as you can guess, is to allow elected officials to celebrate increased homeownership numbers and self-refer to their sense of fairness and caring.
What’s actually going on is that Fannie Mae is using the backing of the Federal government – i.e., the taxpayer – to get banks to makes loans to people that they would turn down in any other circumstance.
Read the rest from Michael Hausam at HausRules.
Photo credit Daniel Lobo