WASHINGTON - The Federal Reserve is giving banks - free of charge - software designed to increase mortgage lending to low-income borrowers.
The more mortgages a bank makes to low-income customers, the better it's performance under the Home Mortgage Disclosure Act. In addition, compliance with the Community Reinvestment Act and fair-lending laws could be enhanced.
The software, called Partners, allows lenders to plug in a number of underwriting variables along with facts about the borrower and the home and determine instantly if the customer qualifies for the mortgage.
Though other computer programs offer that much, Partners goes a step further. If the mortgage application is rejected, the program comes up with 10 detailed changes that could make it acceptable.
"The program attempts to break down the barriers between the loan officer and the potential applicant by offering innovative ways to look at home purchase financing," Fed Governor Lawrence Lindsey said at a press conference showcasing the software.
To start, the lender inputs six underwriting variables, including how much the bank is willing to lend, at what rate, and for how long. Front- and back-end ratios - showing how much of a borrower's income may be consumed by the mortgage and by his total debts - also are plugged in.
The potential ways to make the loan work start with simple suggestions such as to lower the borrower's sights to a cheaper house or encourage him to increase the down payment.
The computer program calculates how much house the borrower could buy or how much more he would have to put down based on the variables provided, such as income and debts.
The program also shows the lender how much the bank would have to depart from its underwriting criteria in order to make the loan.
For example, the lender might designate a front-end ratio of 28%, meaning the mortgage payment could not eat up more than 28% of the borrower's monthly gross income. The program would show the banker what the ratio would have to be for the loan to work. The program does the same thing for other key variables, such as the loan's interest rate.
These suggestions could help banks make more loans to low-income borrowers, because automatically the lender knows how far from the underwriting standards he would have to stray.
Moving beyond changes the borrower or the bank can make, Partners shows four ways that subsidies from the bank or third parties, such as community groups or local governments, could be used.
Simply by clicking on the "taxes" icon, the program calculates how much of a property tax abatement a borrower would need to qualify for the loan.
Another option figures how much money a bank would have to advance a borrower, funds that would be set aside in a deposit account, to make the loan work.
The program was developed by Ron Zimmerman, a vice president at the Federal Reserve Bank of Atlanta. National and state banks that belong to the Fed can get free copies through the nearest Federal Reserve bank. The Federal Deposit Insurance Corp. will distribute the software to state nonmember banks.
The software requires a 486 computer with two megabytes of memory to operate efficiently. Partners operates in a Microsoft Windows 3.1 or higher environment.
