Review of the Fannie Mae Homepath Financing Program

Written By: Stacey Sprain,
Certified Ambassador Loan Processor (CALP)

I’ve seen a lot of press and advertising on the latest Fannie Mae home loan program so, I thought I would do some research to see what I could learn about the program. What I found very odd was that I was able to find very little product information on the HomePath program even with a major effort digging to find information. Because I was confused by this, I called Fannie Mae directly to ask a few questions and good thing I did.

What I found out is that the program is actually a negotiated product between Fannie Mae and only a select number of seller/servicers. This is why very few lenders are offering this type of financing. You will need to check with your lending partners to see if indeed they are or are not offering HomePath financing and will need to pay close attention to the specific details of each lender’s guidelines and requirements as they will differ between lenders.

The HomePath program appears to have been created in order for Fannie Mae to move out a portion of their portfolio of foreclosure properties. The homes that are eligible for HomePath financing appear to be offered at well-below assessed value pricing. Program benefits include the following:

• Minimum of 3% downpayment required in qualifying cases
• Fico score requirements as low as 580 in qualifying cases
• Downpayment can come from gifted or grant monies; secondary financing eligible in some cases
• No mortgage insurance is required
• No appraisal is required
• Eligible buyers include owner occupants purchasing principal residences and investors purchasing investment/rental property
• Availability of HomePath Protection which is a home warranty program for homebuyers

Determining HomePath Eligibility

HomePath eligible homes can be found using the search engine at http://www.homepath.com/ where the search can be limited to specific state, county and property criteria. Potential homebuyers interested in placing offers must be pre-qualified for purchase and cannot have a need to sell an existing home in order to qualify for the potential HomePath property purchase. HomePath contracts cannot be written with home sale contingencies. The homebuyer will need to contact the agent reflected as the listing agent for the HomePath eligible property for interest in writing an offer. That agent will also be able to answer questions the homebuyer may have regarding the process.

The homes that are listed as HomePath-eligible are being sold by Fannie Mae in “as is” condition and are being sold at far below the assessed value so homebuyers are essentially walking away from closing with immediate equity for the future. However, it is always best that the borrowers still elect to have a property inspection done by a professional inspector to be assured that major mechanicals are in working order and that suggested repairs are only minor in nature.

You’ll find additional information on the HomePath program at http://www.homepath.com/ where tabs are available with information pertaining to real estate professionals, HomePath Financing and on Fannie Mae foreclosure homes.

HPI (Housing Price Index) Tool

Written By: Penelope E. Xanthakis, Certified FHA Appraiser (CREA)

Not very long ago, an underwriter asked me to explain my assertion in an appraisal report that a particular market for a neighborhood in the San Diego area was “stable” as opposed to “declining.” Apparently, feedback she received using review software for her conventional loan package tagged the property in question as being in a high-risk market due to the recent decline in market values.

I asked her how the software identified the property was in a declining market and she told me this information was based on the Office of Federal Housing Enterprise Oversight (OFHEO) HPI (Housing Price Index) tool the software uses to identify the market status of real property. I found this incredible because I thought I’d done an extensive review of market indicators in the area and didn’t come anywhere close to that conclusion. Then, after doing some research on the HPI, I realized why.

It is because processors and underwriters often use an automated underwriting software (AUS) system to review FHA, VA or Conventional loan packages that includes a HPI tool built into the software that will flag a property it detects is located in a “declining” or “high-risk” market.

According to OFHEO’s website information on the HPI, “The HPI includes house price figures for the nine Census Bureau divisions, for the 50 states and the District of Columbia, and for Metropolitan Statistical Areas (MSAs) and Divisions.” 1 The MSA designation for the San Diego County area is defined as “San Diego-Carlsbad-San Marcos, CA.” 2 One of the problems with this definition is a high degree of generalization. The OFHEO does refer to the use of HPI as a “…broad measure of the movement of single-family house prices.” and further states, “…actual value of any house will depend on the local real estate market, house condition and age, home improvements made and needed, and many other factors.”3

However, the use of a tool that does not take into consideration a more specific market, as say a search using a zip code, school district or building tract might do, necessarily results in the processor and underwriter to request additional information from the appraiser.

The HPI used as a tool in the processing of a mortgage loan aids in alerting the processor and underwriter to the possibility of increased lender risk. However, it adds an additional step that, in many instances, may be considered unnecessary. The HUD website states in its appraisal guidelines, “…Comparing houses that have been sold and resold in recent years is an effective way to determine market trends. Appraisers who use this method, however, should make sure to factor in any improvements or changes made to the property between sales.” 4

By implication this requires an appraiser to analyze a particular property according to its current physical condition, utilizing paired sales analysis relative to the immediate and surrounding neighborhoods, not the MSA at large. Thus, the appraiser is able to accurately determine a neighborhood’s market condition and trend. Erroneous results may emerge from an analysis too broad to consider the appeal of the typical buyer to a specific neighborhood, tract, subdivision or other type of focused market area.

Appraisers are now expanding the market description in their reports, in part due to an increase in underwriting “conditions” stemming from the use of the HPI in appraisal review. The processor and underwriter may rely on this additional information provided by the appraiser in the application of their automated underwriting to verify that applicable, current market data was used in the consideration of the indicated value in the appraisal and reduce processing time.

It appears the use of the HPI tool in mortgage loan underwriting and processing has been bittersweet. For this reason, I believe the processor and underwriter will continue to rely on the fieldwork of the appraiser to accurately report on current market conditions for a specific property.

While measures to ensure lender confidence will continue their trial and error, I believe an increase in dialogue between appraisers, processors and underwriters will ultimately enhance efficiency, productivity and communication, resulting in a better product to the lender and the consumer. Consumer confidence relies on the integrity of not just the data compiled in the loan process, but the people involved in that process as well.

1 http://www.ofheo.gov/hpi.aspx?Nav=269
2 http://www.ofheo.gov/hpi.aspx#
3 http://www.ofheo.gov/calculator/
4 Valuation Analysis for SF One to Four Unit Dwellings

If you have an opinion about this blog, please share yours… I’d love to hear it!

About the Writer. As one of NAMP's volunteer writers, Penelope E. Xanthakis is currently an FHA Approved Certified Residential Real Estate Appraiser in the state of California. If you would like to become a volunteer writer for NAMP, please email us at: blog@mortgageprocessor.org.