In an effort to help lenders under-stand how to use Freddie Macs under-writing guidelines better, Freddie Oct. 6 unveiled an aggressive program aim-ed at expanding the affordable housing market and changing attitudes about the companys perceived strict loan criteria.
Two new programs spearhead Freddies latest effortGold Measure and Discover Gold Through Expand-ing Markets. Both were developed to help lenders help themselves, although both take different paths toward meeting that end.
Freddie hails the Gold Measure pro-gram as an industry firsta unique method of cross-referencing the bor-rower and loan characteristics most closely associated with credit risk, then applying them against Freddies under-writing guidelines effectively.
The program, which revolves around a new Freddie-derived booklet and worksheet as well as a statistical analysis of more than 7 million loans, measures the credit-worthiness of bor-rowers by studying credit file infor-mation, debt payment burdens, income, loan/collateral assets, and other loans and property.
The information is then assigned into risk units for each factor under each category. When those units are tallied, the final total provides a useful guide-line for the risk associated with the loan, Freddie said.
Once the Gold Measure analysis is complete, lenders can then use the re-cently initiated Discover Gold Through Expanding Markets program, which Freddie says will provide lenders with innovative suggestions on how best to understand and use its underwriting guidelines.
That program, which uses a case study booklet, highlights offsets for the layering of risk identified by Gold Measure, which helps evaluate overall risk associated with each loan orig-inated. Freddie also unveiled a number of other initiatives that accompany the Gold Measure and Discover Gold programs. These include:
Fair lending self-evaluation guide: Intended for lenders considering a self-evaluation program, the guidepublished in conjunction with the Mortgage Bankers Associationoffers suggestions for interpreting and using results.
Affordable Gold enhancements: Enhancements to Freddies premiere affordable housing program include a change in allowable down payment and closing cost options, more flexibility in applying secondary financing to down payment and closing costs, expanding the range of borrowers who may qualify in central cities by allowing more variety in eligible incomes and making refinances eligible.
Prepurchase reviews and second looks: Prepurchase loans, new to Freddies stable of loan enhancement products, give lenders a chance to ensure a loan is eligible for sale to Fred-die before submitting it for funding. Another nuance, the second look pro-gram, ensures that at least two Freddie Mac underwriters will examine loans before the corporation requires lenders to repurchase them. It also allows lenders an opportunity to appeal the repurchase decision.
Adjustable-rate mortgages: The variety of adjustable-rate products Freddie will purchase has expanded, notably for the previously forbidden 7/1, 10/1 and Libor ARM products that have stormed the market since interest rates began climbing again.
