Financial Update (January-March 1996)

Computer Program Makes Partners
Out of Lenders, Borrowers

Finally, a computerized loan officer—and one that borrowers as well as lenders can reason with.

Developed by Ron Zimmerman, a vice president in the Atlanta Fed's Supervision and Regulation Department, the Partners home mortgage lending software package guides bankers, community groups, government agencies, and others in helping low- and moderate-income families learn about and qualify for home loans.

Ron Zimmerman,
vice president, Supervision and Regulation
"The program attempts to break down the barriers between the loan officer and the potential applicant by offering new and innovative ways to look at home purchase financing," said Federal Reserve Board member Lawrence Lindsey.

Partners instantly determines whether a potential home buyer can qualify for a loan given the lender's underwriting criteria and the applicants financial information. The program illustrates how specific financial factors and individual loan underwriting techniques affect the applications, but it remains neutral on what the lender's criteria should be. The program also offers options for applicants who do not qualify for conventional home loans.

"We initially developed a software package to help calculate the amount of down payment assistance low-income borrowers would need to qualify for conventional loans," Zimmerman said, "but after some consideration, I discovered many other ways to qualify applicants."

With 10 qualifying techniques, Partners offers lenders an alternative to simply denying home loan applications while also safeguarding against undue risk.

The software tells potential buyers how much they can borrow, given their financial situation and the lender's criteria. It also provides the potential loan amount if borrowers could reduce other existing debt or increase their family income. Partners specifies the amount of income needed to qualify for the requested loan.

Flexible lenders may be able to adjust their underwriting criteria slightly, too. The software will determine the debt ratios, interest rates, or down payments necessary to qualify applicants.

Another option is to ask governments to forgo some property tax payments to help applicants qualify. Some governments are willing to provide these tax abatements because the applicants may, through pride of ownership, enhance communities where previously unkept or abandoned properties were not generating significant tax revenues anyway.

Nonprofit organizations may also provide opportunities for home buyers. By selling homes near, but still below, existing market rates, non-profit organizations can receive their required sales price yet also provide down-payment assistance to help qualify applicants. Lenders receive market rates of return and borrowers still receive below-market interest rates and purchase prices. Partners software provides the calculations needed to make this strategy work.

In addition to determining loan eligibility, Partners also contains loan amortization schedules for fixed-rate monthly payment loans, equity build-up calculations, and secondary market considerations for those interested in determining premiums or discounts on loans sold.

Click here to download Partners, or order it from the Federal Reserve Bank's Community Affairs office at (404) 589-7358. The diskette and brochure are free.

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