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Tom Kelly
Tom Kelly
The Real Estate Adviser

February 23, 1996

LENDERS GETTING MORE FLEXIBLE

  • The Real Estate Advisor

    • BY TOM KELLY
    The Real Estate Advisor

    Banks have been criticized for their inability to deliver what the borrowing public really needs.

    The latest example was a Human Rights forum that concluded a definite consumer mistrust of traditional banking services (probably due to the much publicized savings and loan fiasco) and a turn toward mortgage brokers and bankers for home loans.

    It seemed lending guidelines were too rigid -- blamed mostly on criteria dictated by the mysterious, all-powerful "secondary market" that most consumers didn't want to understand nor contact.

    Now, lenders -- even those who choose not to sell loans to the secondary market -- are offering versatile, flexible programs that go along way to provide customers with workable products. In fact, if a borrower is now in the market for a home, there is probably a loan that will do the job. The main problem recently has been alerting customers that banks are prepared to "walk their talk" in home lending.

    An example occurred this week when Washington Federal Savings Bank became the first residential lending institution in Western Washington to sign a voluntary Best Practices Agreement with the United States Department of Housing and Urban Development. The agreement is part of a nationwide effort by HUD to ensure that minorities and low-income persons have an opportunity to become home owners.

    "It's basically a reaffirmation that we are doing some good things for the right reasons," said Charles R. Richmond, Washington Federal's executive vice president for residential lending.

    Washington Fed, which keeps a majority of its loans rather than selling them in the secondary mortgage market, jumped head first into affordable limelight two years ago when it introduced a 1 percent down payment loan. The bank, unlike many savings and loans nationally, has been profitable and its 99 percent loan was an attempt to counter the biggest obstacle to home ownership -- the lack of cash for a down payment.

    Because Washington Federal will keep these loans, it also draws the guidelines. These requirements are not as stringent as those stipulated by the secondary mortgage market. For example, mortgage insurance coverage will be provided under Washington Federal's self-insurance program for a fee of 2 percent of the loan amount. In addition, the interest rate on the loan will be half a percentage point higher than on conventional loans.

    The 1 percent-down loan must be for an owner-occupied home for first-time buyers. The loan must be taken out at a Washington Federal branch (not brokered through another lender), must be on single-family detached homes (condominiums, townhouses and mobile homes are not yet included), and no loan shall exceed $200,000. Refinances are not eligible.

    Many other requirements, included income of no more than 115 percent of the area median (about $55,000 in King County) must be met before the loan is written.

    In order to fulfil their charters as financial institutions, lenders must comply with the national Community Reinvestment Act (CRA). Under this law, lending institutions must re-invest money in the communities they serve. By making an effort to serve lower- to middle-income borrowers via the 1 percent down program, Washington Federal picks up some of its CRA requirements.

    "HUD came to us with the Best Practices Agreement," said Toby Washington, Washington Federal's vice president for multi-family loans. "We think it's good message to send to the individuals in all of our branches that everyone is responsible to achieve its goals. Everyone will be held accountable."

    The message -- and pressure -- to serve all borrowers is common. The Federal National Mortgage Association -- the biggest player in the secondary market -- has been trying to get its participating lenders to take note of its flexible and versatile home-loan programs for at least two years, sparked by a national demand to get low and moderate-income consumers into homes. "Opening Doors" is a comprehensive consumer information campaign that goes back to Step 1 with basic loan explanations in English, Spanish, Chinese, Korean, Vietnamese, Russian and Haitian Creole.

    HouseSeattle has become the Puget Sound conduit into Fannie Mae's new effort. About $1.5 billion out of a national pot of $1 trillion is scheduled to be spent locally on approximately 18,000 low, moderate and middle income families. The company, publicly traded and based in Washington, D.C., has set up offices in 18 major cities, including Seattle, to ensure local focus.



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