Fear is driving the mortgage market and that fear has resulted in a larger percentage of people than necessary who will be excluded from purchasing a home.
Not everybody is qualified to purchase a home but to deny people credit by using arbitrary means such as the overreliance on credit scores is not rational, the inventor of the mortgage-backed security declares at the Mortgage Bankers Associations annual convention in Washington.
Keeping people from buying homes will have an adverse impact on the economy because of the multiplier effect of ownership, with people not spending money on things to furnish their homes and more.
Instead of having an unfounded fear of the bad practices of the past, the industry must move forward to encourage lending using proven underwriting techniques and the lenders own good judgment, Ranieri says.
Home Mortgage Disclosure Act data show that groups such as minorities, households headed by women and first-time homebuyers are the ones being denied access to credit. Meanwhile, these are the same groups that will be leading new household formation in the coming years, and something has to be done, he says.
This includes extending the safe harbor provision under the qualified mortgage rule to include nonagency loans with back-end debt-to-income ratios above 43%. If this does not happen, there will not be a nonagency market, he says.
There must be a rent-to-own financing product to encourage homeownership. When there is an option to purchase a home, the consumer has an opportunity to build a downpayment, improve their credit history and to get knowledge and advice about homeownership, Ranieri says.