TheMReport — News and strategies for the evolving mortgage marketplace.
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18 | TH E M R EP O RT FEATURE T he famous movie line, "There's no place like home," has a whole new meaning when one looks at the downward homeowner- ship trend these days. In first quarter 2016, the rate dropped to 63.5 percent, only one tenth of a percentage point above the 48-year low experienced the prior year, according to the U.S. Census Bureau. "There's been a combination of forces that's created a unique mar- ketplace," says Cam Melchiorre, President and CEO of HLP, a nonprofit technology-based mort- gage solution-provider. "That calls for some extraordinary responses to help normalize things and open the housing market up to traditional volumes, certainly not the volumes that were reflective of the boom years or bubble years, but a more rational market." Despite many economic and de - mographic challenges, many hous- ing pros believe that, like Dorothy in "The Wizard of Oz," this story will have a happy ending. "I believe the desire to own a home is strong and natural in our country," says Danny Gardner, Freddie Mac VP of Single Family Affordable Lending and Access to Credit, who expects the number of homeowners to nearly double, from 5.5 million to 10.1 million, by 2020. The path to homeowner - ship is not as simple as merely following the yellow brick road. Some would rather face an army of flying monkeys than make that trek while also dealing with rising home prices, student loan debt, and other financial obstacles. There are many difficulties facing borrowers, even more after the in - dustry took its required medicine in the recovery from the housing downturn. "All borrowers are facing much tighter credit thresholds than is necessary to finance a safe and sustainable mortgage," says Marietta Rodriguez, VP of home- ownership products and lending for NeighborWorks America. The Washington, D.C.-based organiza- tion directly supports a network of more than 240 nonprofits with technical assistance, grants, and training for 12,000-plus profes- sionals in affordable housing and community development. "The pendulum on credit swung too far after the mortgage crisis, now more than eight years later, and while credit has certainly eased from then, it is still too expensive and restrictive." Melchiorre at Baltimore-based HLP says, "It's a combination of the reaction to the crisis, which was an extreme regulatory envi - ronment of underwriting rules, eligibility rules, capital require- ments against lending that have been created. There's a generation now of people who need financing who've gone through that recession and have emerged on the other side with credit deficiencies. Those factors are hindering an otherwise favorable financial environment with historically low interest rates." With loan origination becoming more and more expensive, lenders are increasingly concerned about repurchase risk and, as a result, add overlays to reduce the chance of default, according to Gardner, who calls such overlays the biggest challenge facing borrowers today. Lower credit scores by aspiring homeowners mean higher risk, which translates into higher costs. Rodriguez says, "The lending market today has too many ad - ditional risk-adjusted costs that are layered onto the cost of a mortgage being made to a borrower without perfect credit. Those costs are making the mortgage prohibitively expensive. Eliminating many of these risk adjustments could open up the pathway to mortgage finance for many more borrowers." The NeighborWorks America VP maintains that lenders must consider the full history of a bor - rower when underwriting a mort- gage and better recognize that low down-payment homebuyers are not as risky as previously regarded. She adds, "Borrowers should have some skin in the game, meaning some of their own money into the deal, but increasing the affordability by utilizing down- payment assistance programs only makes the home more affordable and thus more sustainable long term for that buyer." Another major barrier, one more understood on the consumer side of the equation, is the lack of adequate credit. Many younger adults, who perhaps live with their parents and avoid using credit cards, find it difficult to establish the credit needed to qualify for a mortgage. And some hurdles are not in the credit rating of the borrower, but in his or her head instead. Rather than bliss, igno - rance can be a miss, as in a missed opportunity for homeownership. "I think we all know the most common misperceptions include the beliefs that you need perfect credit to qualify for a mortgage and a 20 percent down-payment to buy a home," says Gardner. He maintains that other potential borrowers think low down- payment mortgages are only for Owning Up Public and private mortgage actors are working hard to grow homeownership. By Brian A. Lee