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Bad credit? No credit? No sweat. Buy that
house!
Marian Miller Chang • Bankrate.com
Fannie Mae and the National Foundation
for Consumer Credit are organizing a plan that gives consumers who
have had previous credit problems the chance for homeownership.
The two groups say that if you're enrolled in an "approved debt
management program with intensive counseling," you can have the
opportunity to become a homeowner through Fannie Mae-approved lenders
in 13 metropolitan areas.
"It's a new thing for both groups --
for Fannie Mae and for our NFCC clients, which are Consumer Credit
Counseling Service offices across the nation," explains Cora Fulmore,
NFCC director of housing. "We're trying to make sure that we
make as many programs available to our customers as possible, to
share with people once they've paid off their debts."
The plan is only open to borrowers who
have had financial difficulties in repaying debts due to a situation
over which they had no control, adds Julie Gould, Fannie Mae's vice
president for community lending. Situations such as divorce, job
loss, death or medical emergency are typical scenarios.
The requirements
Eligible borrowers must have been in
a CCCS Debt Management Plan for a minimum of 18 months and have
no more than 18 months remaining. Previously, these
consumers would not have been considered for a Fannie Mae loan unless
two or three years of creditworthy history had passed, Gould adds.
The experiment is also open to borrowers
who have graduated from a participating CCCS Debt Management Plan
in the past 12 months.
"This will help Fannie Mae determine
if intensive counseling can help borrowers take on the additional
responsibilities of homeownership after an isolated financial setback
that occurred through no fault of their own," Gould says in a prepared
statement.
"With Fannie Mae working with our credit
counseling clients, they won't have to wait that two-year period
for a loan," Fulmore states. "And the advantage to Fannie Mae is
that they won't have to portfolio those loans. They can sell these
on the secondary market."
There are some disqualifying factors,
however. The borrower cannot have declared bankruptcy and
must have continued to make his or her mortgage or rental payments
as agreed on a timely basis. During the Debt Management Plan period,
the borrowers must not have had any late payments.
In an effort to make the credit repayment
process less painful, Fulmore says CCCS offices are conducting telephone
interviews.
"The consumer can call us and give us
all the information we need to set up a Debt Management Plan initially,
without having to leave work and come down to our offices," Fulmore
states. "That is a real inconvenience for many people, and if they
can just use their lunch hour to call in the necessary information,
it saves time."
Consumers who have graduated from CCCS
counseling courses are "good credit risks," Fulmore adds.
"They chose, instead of filing bankruptcy, to pay off their debts.
We hope to show Fannie Mae that our clients are good risks and the
performance on these loans will not be any different from that of
any other loans to individuals who have gone through credit problems."
The typical profile of a consumer going
through the Debt Management Plan is a person who has an unforeseen
reduction in income, but they have enough money coming in to take
care of their basic living expenses and the prorated payments that
CCCS sets up with the participating creditors.
"Because most of our clients have gone
through a period of adjustment, they know how to manage a budget,"
Fulmore says. "They have had to manage their obligations and abide
by a structured budget that has been set up for them. They have
learned how to maintain obligations and for that reason alone, this
program should be a success."
CCCS clients are grateful for the chance
to prove themselves, she adds, because they have been given a second
chance to re-establish themselves as creditworthy.
"There is a big misunderstanding out
there about what debt management programs such as ours are," Fulmore
says. "It is not at all similar to a bankruptcy. Our clients are
taking the responsibility to pay off debts and honor their obligations.
They should be commended for their actions."
Loans available under the experiment
include Fannie Mae's Fannie 97 or 3/2 Option loans. The Fannie
97 loan is basically a low-downpayment program for people with excellent
credit but little savings, explains Alfred E. King, a Fannie Mae spokesman. It allows the consumer to make the downpayment
from an unsecured loan, such as a credit card or a grant, or even
a loan from a relative. These are options not typically available
from most mortgage lenders.
The 3/2 Option Loan is a 5 percent downpayment
loan, which requires that 3 percent come from the borrower's own
funds and 2 percent from a grant or gift.
Both loans require standard underwriting
criteria and borrowers must have two months of mortgage payments
in reserves.
All borrowers also are required to participate in
monthly credit and budget counseling as part of the Debt Management
Plan and must complete a four-hour comprehensive pre-purchase home
buyer education course. After the home is purchased, another 12
months of post-purchase counseling must take place.
NFCC member offices (usually called CCCS offices)
that will participate include those in these cities: Atlanta, Ga.;
Buffalo, N.Y.; Cleveland and Columbus, Ohio; Denver, Colo.; Gary
and Indianapolis, Ind.; Los Angeles and Santa Clara, Calif.; Miami,
Fla.; Phoenix, Ariz. and San Antonio, Texas.
Lenders that will originate loans under the program
include CitFed Mortgage Corporation of America; GMAC
Mortgage; Huntington
Bankshares; Indiana
Housing Finance Authority working with Leader
Mortgage; NationsBank;
SunTrust
Bank and Wachovia
Bank.
To find the location of a NFCC agency close to you,
call the national referral line at (800) 388-2227. Local CCCS offices
also can identify other local lenders that are in the process of
joining the program.
Can a debt management program really help?
Before someone can become creditworthy to a mortgage
lender or apply to the Fannie Mae program, they are required to
go through a Debt Management Plan.
But how can it help?
Martha Webster, director of housing at the local tri-county
office of CCCS in West Palm Beach, gave us the scoop.
The Debt Management Plan allows you to consolidate
and repay your debt -- so, when CCCS counsels you, they will go
through your budget and your credit. If you're in the market
for a new home and have blemished credit, CCCS can help you clear
it up.
Typically, you will pay back your debts on a 36-month
plan, but that is often extended to 48-months if you need more time
to repay. The program allows you to work out a budget plan,
in this case, with a one-time contribution of $20 and a $4 monthly
fee for mailing and processing of the bills. The charges differ
from CCCS office to CCCS office, but the program is the same.
In order to be accepted into the Fannie Mae program,
Fannie Mae requires a four-hour prepurchase course, based on the
course outline in Fannie Mae's workbook called "The Guide to Homeownership."
That course teaches budgeting strategies and explains
how credit affects ability to buy a home. You'll learn things such as
how to avoid racking up a great deal of debt before you purchase
a home and how to get copies of credit reports.
In addition, the prepurchase course covers these topics:
- How to increase income by rearranging budget
and decreasing debt
- How much house can you afford?
- Shopping for a home, with strategies
- Closing procedures (usually handled by volunteer
lenders who guest-host classes to teach the basics of understanding
closing documents)
- Closing costs, such as costs of documentary
stamps, insurance, appraisals, credit reports
- How to homestead your taxes
- How to budget to handle all mortgage costs,
including taxes and closing fees
A third Fannie Mae requirement under the new experimental
program is a 12-month post-purchase program. In Palm Beach County,
this program is conducted in conjunction with the University of
Florida Cooperative Extension Service. The topics covered vary widely,
but often include:
- Pertinent consumer information to be aware
of after you purchase a home, i.e. scams to watch for such
as companies selling siding and lawn maintenance or satellite
dishes and water softeners
- Home security issues
- Landscaping your home
- Maintaining your home and keeping up your
property value
- Sticking to a budget
"There's a lot of good information presented to homeowners
in the post-purchase programs, but unfortunately, people are working
so much to pay for their new house, they find it difficult to attend
these classes sometimes," Webster says. "Ours is a voluntary program
and it's hard to get people to attend on a regular basis over 12
months."
Posted: April 29, 1998
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