Washington Watch 1997 Annual Edition

Fannie Mae Rolls Out Pledged-Asset Mortgages

WASHINGTON, DC-Fannie Mae has introduced a new type of mortgage loanfor home buyers. Pledged-Asset Mortgages enable home buyers to borrow upto 100 percent of the sales price of a home when there is a pledge of astable financial asset. Pledged-Asset Mortgages are specially designed forborrowers who have sufficient income to make monthly payments toward a home,but who have not saved the necessary down payment.

Pledged-Asset Mortgages allow borrowers to capitalize on savings withoutspending them. The built-in safety of the pledged asset lets the borrowerfinance a home with a minimum investment of 3 percent (in down payment orclosing costs). Even 100 percent loan-to-value (LTV) ratios are acceptable.

Only one-unit, owner-occupied, primary residences are eligible. Borrowerscan choose from 10-, 15-, 20-, and 30-year fixed-rate, fully amortizingmortgages. Adjustable-rate mortgages are available only when the pledgedasset is greater than 10 percent and the borrower is making a contributionof at least 5 percent.

Fannie Mae is experimenting with three types of pledge programs. The 30 percent pledge program requires that a family member pledge 30 percentof the principal balance on a 100 percent LTV loan. Mortgage insurancecoverage is not required.

The 10 percent family member pledge allows a family member to contribute10 percent of the original unpaid principal balance on a 100 percent LTVloan, provided that the borrower's income is less than or equal to 100 percentof the area median income, and the borrower contributes at least 3 percentto down payment and closing costs. Incomes greater than 100 percent of areamedian income are allowed provided the borrower contributes 5 percent ormore for down payment and closing costs. Mortgage insurance is required.

Pledges may only be given by a parent, grandparent, brother, or sistereligible under the Fannie Mae gift policy or, in the case of the self-pledge,by the borrower. The pledge must be held as a certificate of deposit ata bank, credit union, or other depository.

HUD Helps Honeymooners

WASHINGTON, DC-Secretary of Housing and Urban Development (HUD) HenryCisneros has announced a new FHA initiative, encouraging couples planningto get married to establish a bridal registry savings account in order tohelp them accumulate the down payment necessary for purchasing their firsthome together. Given that over two million people were married in 1995,such an initiative could have a significant and positive impact on new families.

Current FHA policy permits cash gifts to be used as an acceptablesource of funds for the down payment. This new initiative formalizes theuse of cash for the down payment by allowing couples to open up a bridalregistry account where family and friends can deposit their gifts directlyinto that account. Then, when the newlyweds purchase their new home, themoney will be available and documented through a lender supervised account.

While lenders will be given the flexibility to set up the detailsof this program, the Department envisions that an engaged couple would contacta mortgage lender and request it to establish a bridal registry accountin their name. Participating lenders would set up the interest bearingaccount with a financial institution then provide to friends and familyof the couple information concerning the bridal registry account and howit works.

As reported in the Spring 1996 issue of the Mortgage Almanac, somelenders have already begun bridal registry programs for their own loan products.

Freddie Mac, APD to Use Auctions to Expand Home Ownership Opportunities

McLEAN, VA-A national alliance was announced between Freddie Mac andAsset Property Disposition, Inc. (APD) will offer at least 400 low- andmoderate-income and minority families an opportunity to buy their own homesthrough property auctions in communities across the country.

APD, an Atlanta-based real estate marketing and disposition firm,and Freddie Mac will form local alliances in targeted underserved communitieswith neighborhood development and housing advocacy organizations. The allianceswill sponsor auctions with organizations that have unoccupied affordablesingle-family housing, including mortgage lenders, housing developers, non-profithousing organizations, local labor organizations and governmental agencies.Local alliances will be formed in Gainesville, FL; Harrisburg, PA; and Wilmington,DE; during the first year of the initiative, which is expecte to expandto 20 markets. No plans have been announced yet for the New England orNew York regions.

"We will link APD's experience in marketing unoccupied propertiesand organizing local affordable housing alliances with Freddie Mac's abilityto work with lenders to create financing opportunities for underserved borrowers,"said Mike Coffey, vice president of Freddie Mac's Expanding Markets Department."Through this initiative, we will sponsor auctions targeted to increasehomeownership among low- and moderate-income families and help revitalizeneighborhoods across the country."

"Our 'Affordable Housing Opportunity Auction' events bring togethergreat housing opportunities and attractive mortgage financing for first-timehome buyers," said Jesse Wiles, APD's founder and owner. "Thereare literally hundreds of vacant and abandoned houses and vacant lots incentral city communities throughout the United States. Our sales eventshave proven that this underutilized resource presents an opportunity forhomeownership and neighborhood revitalization."

The local alliances will sponsor "affordable housing dispositionevents," such as housing auctions or fairs, where properties will beoffered for sale to low- and moderate-income families. Under the initiative,APD will work with local community organizations to provide outreach andcounseling services for potential borrowers to prepare them for the auctions.Participating lenders will offer Freddie's mortgage products and servicesto borrowers. Freddie is committed to purchasing all loans that meet itscriteria.