Affordability and fair access to mortgages
NAHREP advocates for better lending policies
Access to affordable mortgages is a concern we all have, and it’s especially troublesome issues for minorities and low-income families. Local affordability is quickly becoming a major concern in North Texas. We’re going to have to make access to credit a priority issue in the public mind and for our lawmakers if we want to keep our market strong.
That’s why it’s important to know about the work of National Association of Hispanic Real Estate Professionals (NAHREP). In 2016, some of their policy positions included access to credit as well as addressing the unintended consequences of TRID implementation.
Improving access to affordable mortgage credit stems from three areas of concern: (1) Loan level price adjustments (LLPA) and guarantee fees (G-Fees), (2) FHA underwriting certification, and (3) credit scoring.
LLPA and G-Fees are lending fees imposed on high risk borrowers. Essentially, lenders are saying they will make the loan but the borrower will have to pay a substantially higher effective interest rate for the loan than other borrowers. This is in addition to mortgage insurance premiums, which are costly. By imposing both LLPAs and G-Fees, low-income and first-time borrowers are essentially being charged extra fees twice for risk reduction on the loan. NAHREP advocates eliminating LLPAs.
Unclear FHA underwriting certification guidelines are driving lenders out of the marketplace. Lenders are struggling with the guidelines. Many have stopped issuing FHA loans rather than risk large fines imposed because of unwittingly committing underwriting violations. Because of this, borrowers are finding it more difficult to access affordable mortgages. NAHREP advocates the clarification of these guidelines so that credit may be loosened again.
Additionally, credit scoring models currently used do not capture transactions that take place outside of the conventional banking system. This model tends to put “credit invisible,” “unbanked,” and “unscorable” borrowers at a disadvantage since cash transactions are not considered, however timely payments may be. The CFPB noted in a 2015 study that 27 percent of both Hispanic and Black consumers and were thus not given accurate credit ratings. When the CFPB looked at income levels, about 45 percent of low income consumers were unscored, and a further 30 percent of moderate income consumers were similarly unscored. NAHREP advocates using a broader spectrum scoring tool rather than allowing lenders to rely solely on traditional scoring models.
When the new TRID rule change began implementation in 2015, concerns about delayed closing times were addressed and most lenders have been able to return to a timely closing pattern. However, CFPB guidelines remain murky, and do not often provide written approval for non-traditional incomes. Because of this, lenders are leery of these types of loans, should an audit raise questions in the future. This adversely impacts younger workers and Hispanics in particular. NAHREP recommends the CFPB provide more documentation to allow lenders to accept self-employment and temporary work income to qualify for loans.
In just a few weeks, NAHREP will be holding their annual policy convention in Washington, DC. We’ll be watching to see what the focus will be on for 2017.