FNMA Fannie Mae (QB)

Mortgage-finance giant Freddie Mac and two nonbank lenders are loosening income and documentation requirements for mortgage applicants in a new pilot program.

The changes announced Monday are designed to help boost mortgage originations among first-time buyers, applicants with low-to-moderate incomes and those who live in underserved areas.

The moves come nearly a decade after the start of the mortgage meltdown, as many consumers remain shut out of the housing market largely because they can't meet the underwriting criteria that most lenders require. Under the Freddie program, applicants will be able use the income of people who will live with them but aren't going to be on the mortgage to qualify.

In addition, income from second jobs that borrowers have held for a relatively short period will be factored in. The pilot also doesn't require bank statements that would show a paper trail of how some borrowers save for their down payments.

Many of the pilot's features are similar to what Fannie Mae currently allows on some mortgages it purchases but are new for Freddie Mac, which is among the largest purchasers of mortgages in the country. Freddie Mac says it purchases one in every four mortgages originated by lenders in the U.S.

The changes, which went into effect on Monday, will apply to people who sign up for a mortgage with Las Vegas-based Alterra Home Loans or Tustin, Calif.,-based New American Funding. The companies' specialties include lending to low-income and Hispanic borrowers. The lenders will sell the mortgages they originate to Freddie Mac.

The partnership has been in the works since late last year and will be in effect for at least 12 months. Freddie Mac will determine whether to expand it beyond pilot phase if performance meets expectations. It declined to discuss any numbers it has as goals for loan volume or the delinquency level it would like to stay below.

The pilot isn't lowering down payment or credit score requirements. Rather it is loosening income criteria, including for applicants who have two jobs. Until now, Freddie Mac has required that borrowers who show their income from a second job when applying for a mortgage demonstrate that they have held that job for at least 24 months, a period that in the pilot is reduced to 12 months. Separately, self-employed borrowers will have more options to prove their business exists to the lenders.

In addition, borrowers who will be living with family or other individuals for at least 12 months after they purchase the home will be able to use those non-borrowers' income to get approved for the mortgage. The income will be factored in to help improve the borrowers' debt to income ratio, a key figure that compares borrowers' monthly debt obligations to their gross monthly income.

Paperwork requirements will also loosen up for some borrowers who don't have bank statements to show how they have saved for their down payment.

Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com

(END) Dow Jones Newswires

September 20, 2016 01:25 ET (05:25 GMT)

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