GE Capital Mortgage Insurance Corp., seeking to curb class and cultural biases in mortgage finance, has increased the flexibility of guidelines for loans it will insure.
The guidelines are being cheered by some top lenders.
Nationsbank, for example, hopes the guidelines will help it with millions of dollars in affordable-housing loans that it has been unable to insure. "We fully expect to approach GE," said Catherine P. Bessant, a senior vice president for the Charlotte, N.C., banking giant.
Once insured, the loans would be much more marketable, either to the federally chartered secondary market agencies or to investment trusts and pension funds, Ms. Bessant said.
The guidelines largely pull together what lenders, insurers, and the secondary market have learned in recent years about lending to lower-income and minority borrowers.
"Our intent was to take some of the best insights of our strongest underwriters . . . codify them, and make them available to all underwriters," said Kurt Archart, vice president for affordable housing at GE.
For example, the guidelines recognize that pooled savings arrangements are common in many cultures, and that those savings may be safely used for downpayment and closing costs.
Also, the guidelines suggest that underwriters take a more flexible approach to cases where several unrelated borrowers choose to pool their incomes and buy a house.
"Someone who doesn't have direct contact with other cultures may fall into the trap of applying their own standards," Mr. Archart said. "We're merely pointing out that some people in some cultures routinely live in tight quarters because of social habit or economic necessity."
The guidelines also address:
* Lending on inner-city properties near warehouses, liquor stores, or railroad tracks - features that would be red flags in Suburban neighborhoods. The guidelines suggest that such properties can be safely under-written with the help of appraisers experienced with inner-city properties.
* Lending to lower-income borrowers who switch jobs frequently to capture even small pay increases. Conventional underwriting guidelines place a premium on job stability. Instead, GE suggests that underwriters evaluate whether the borrowers has had a stable income, even through several job changes.
Question of Clout
Though the guidelines may help lenders, some executives question whether GE has the clout to truly alter deeply ingrained practices in the industry.
GE "does not control enough [of the market] to set a standard," said Thomas C. Palmer, senior vice president at Banc-Boston Mortgage Corp.
The Federal National Mortgage Association voiced support for GE guidelines, adding they they echo many of the agencies own standards.
"We endorse the step that GE has taken," said Robert J. Englestad, senior vice president for mortgage and lender standards. The guidelines give "very clear guidance on the flexibility that we've always said is there" in Fannie's guidelines. Mr. Englestad said.
The Federal Home Loan Mortgage Corp. offered a similar
"One of the things we've been fighting for a long time is checklist underwriting," said Andrea Stowers, the agency's director of affordable-credit policy.