Rookie homebuyers should have a better go at financing over the next few years, compared with those who have gone before them.
At least, that's the story as laid out at a recent meeting of lenders in Atlantic City, New Jersey. Speakers said they expected hundreds of thousands of first-time buyers to enter the housing market in the coming years, and talked about what lenders are doing to try to satisfy the coming demand for mortgages.
David Stevens, a former federal housing official who now leads the trade group Mortgage Bankers Association, said household formations will increase to about 1.6 million a year between 2015 and 2024, compared to the increase of 1.2 million a year between 2010 and 2014.
Millennials and minorities will drive this demographic boom, with two-thirds of new household formations coming from minorities, Stevens said at the Regional Conference of Mortgage Bankers.
People form new households either by marriage or by moving out of Mom's house (or both). These new "households" either rent apartments or houses, or buy places of their own.
The popular wisdom suggests they will become renters first. But Stevens believes ownership may soon come first, especially for those not saddled with student loans. If ownership doesn't come first, than at least it will follow soon after an initial rental period, he predicts.
"The homeownership rate will go up again," he told the conference. "Younger renters want a home."
The ownership rate has plunged since the mortgage crisis of 2008. But in tandem, the rental sector has become tight and less affordable. Which means owning a home rather than leasing one is now a better option, in many places.
The challenge, said Regina Lowrie, a former MBA chair, will be "to access credit."
But on that score, major players already are looking forward. One is mortgage giant Fannie Mae, which has a program called HomeReady.
As described by Jennifer Whip, a vice president and head of customer management for Fannie Mae, HomeReady is designed to provide expanded mortgage eligibility in low-income, minority and disaster-impacted communities through low down payments and other features.
Fannie Mae isn't a lender itself, but it and its cousin, Freddie Mac, drive an enormous percentage of the mortgage market by purchasing loans from primary lenders. That helps lenders replenish their supplies of cash so they can make loans to more and more homebuyers.
Finding the up-front money is always a major obstacle for any borrower, but it is especially difficult for those of modest means. Under the HomeReady program, though, Fannie will buy loans with only a 3 percent down payment. Better yet, other sources of funds -- say, a gift from Dad -- can be used to help make a down payment and pay closing costs, so it is possible young buyers will need little or no money of their own.
Fannie and Freddie require all borrowers to obtain private mortgage insurance on any loan with less than 20 percent down. The insurance, which can be expensive, sometimes adding several hundreds dollars to the monthly house payment, serves as a backstop in case a borrower defaults on his loan. But for HomeReady, Fannie Mae has adopted a more flexible mortgage insurance program that trims premiums substantially.
Whip said HomeReady represents her company's attempt to get ahead of the next wave of buyers. Fannie Mae sees "a demographic sea change in the housing market, characterized by the rise of the millennials, increased diversity and a growing elderly population," she said. "And new household growth is being driven by traditionally underserved segments."
Radian Guaranty, a private mortgage insurer, is yet another big mortgage market player looking to cash in with future homebuyers. It has built a robust website full of advice for newbies on obtaining financing. The site -- achievethedream.com -- has articles that should be required reading for first-time buyers. Topics include what previous borrowers wished they'd known when they bought their first homes, how to repair damaged credit, how to save for a down payment, and how to connect to good real estate agents and mortgage lenders.
Meanwhile, Bank of America, in conjunction with a community development financial institution called the Self-Help Credit Union, is offering a program called the Affordable Loan Solution that gives eligible borrowers what it labels "an affordable entry price." (Full disclosure: I write a monthly column for a BoA newsletter.)
Under BoA's program, the giant bank will make the loans, then sell them to Self-Help. The credit union will then sell the loans to Freddie Mac, but it will continue to collect the payments on Freddie's behalf.
"The strength of the Affordable Loan Solution program is how it brings each partner's special expertise together to address the barriers faced by aspiring homebuyers with limited savings," according to Danny Gardner, vice president, affordable lending and access to credit at Freddie Mac.
-- Freelance writer Mark Fogarty contributed to this report.