Psst! Want a great deal on a home mortgage?

January 15, 1995|By Daniel B. Wroblewski | Daniel B. Wroblewski,Real Estate Editor

The mortgage industry is almost daring you to borrow money.

Just last week, the Federal National Mortgage Association, or Fannie Mae, said it is reminding lenders that rules are made to be broken, that certain guidelines can be ignored if the borrower is qualified in other ways.

The Mortgage Bankers Association several weeks ago launched a media campaign to encourage home buying, claiming renters believe that obtaining a mortgage is more difficult than it really is.

And lenders across Maryland are lowering down payment, credit and income requirements to drum up business.

Not too long ago, during the refinance boom that exploded in 1993, borrowers came running to lenders, who often had more business than they could handle. Today, the industry is working hard to find loans.

"Everybody's trying to make the deals work," said Harry Gormley, senior loan officer at MNC Mortgage Corp.

In the United States, loan volume peaked in 1993 at $1 trillion, according to the U.S. Department of Housing and Urban Development. When the dust settles, loans are expected to total about $750 billion last year and $600 billion this year.

To reach out to minorities as well as to increase the pool of loans, Fannie Mae told lenders last week that they could accept borrowers with less income than usual in many cases. Usually, lenders require that monthly payments add up to no more than 28 percent of the borrower's monthly income, and that total debt payments equal no more than 33 percent of income. These ratios are higher for loan programs designed for low- and moderate-income buyers.

Fannie Mae -- which buys mortgages from lenders and sells them to investors -- said lenders can ignore these limits if, for example, the borrower has clean credit, a stable job or a history of paying rent of about the same amount.

The Federal Home Loan Mortgage Corp., or Freddie Mac, last year offered a similar program called "alternative qualification," which focuses on past experience -- a history of paying rent, for example -- rather than the borrower's debt load.

Many lenders already ignore some of the guidelines to make a sale, but others are fearful, worried that the loan will go bad and they will have to buy it back.

"What Freddie Mac and Fannie Mae are trying to overcome is the perception that the guidelines were rules," said John Lewis, managing editor of Inside Mortgage Finance.

"A lender is always afraid that if they sell a loan that goes bad, they may be asked to repurchase it," Mr. Lewis explained. "And no lender wants to repurchase a loan."

The MBA's campaign is intended to show renters that they can afford a loan. The group conducted a poll last year which showed that most renters believe they need at least a 10 percent down payment and a perfect credit history.

"We think there are a lot of folks who have not had access to the process," said Joe Pickett, president of the MBA. Potential buyers are "too confused, too intimidated by the process to even try."

Mr. Pickett said the campaign is both to reach minorities and to increase business for the mortgage industry.

On Fannie Mae's announcement last week, Mr. Pickett said lenders are in a "transition period," trying to figure out how much to bend the old rules.

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