Fannie Mae: Mortgage Lending for Today’s Market - the Rise of Extended Households

Provided by Fannie Mae
 
Mortgage Lending for Today’s Market: the Rise of Extended Households
 
Fannie Mae’s Economic and Strategic Research group is reporting a “demographic sea change” in the housing market. Households are changing, with household growth being driven by traditionally underserved segments. One trend is the growth of extended-household living arrangements.
According to the National Association of Realtors (NAR), 13 percent of home purchases in 2015 were made by multigenerational households (2016 Home Buyer and Seller Generational Trends report). Such households often include parents of the homeowner, but adult children are common as well.
 
NAR reported that “Younger Baby Boomers” (home buyers ages 51 to 60) are “more likely to buy a multigenerational home. As the sandwich generation, they are nearly equally likely to buy this type of home for both children over 18 living at home and caretaking for aging parents.”
 
In fact, adult children make up 42 percent of extended households, according to Fannie Mae analysis of U.S. Census American Community Survey (ACS) data (ACS 2013 1-Year Public Use Microdata Sample). Not all extended-household members are relatives – 13% were non-relatives in the ACS data analysis.
 
Fannie Mae conducted research to better understand the characteristics of extended households and consider implications for mortgage lending. Our findings include:

• Extended-household living arrangements are more common among underserved populations, including low- to moderate-income, minority, and immigrant households.
• Multigenerational and other extended households often have household members who are willing to help out with expenses when the need arises.

In Serving Today's Mortgage Market: Adding Flexibility without Adding Incremental Risk, Fannie Mae Vice President Jonathan Lawless describes how our research led Fannie Mae to offer a flexibility that can help extended households get home financing through our HomeReady® mortgage product. Although extended-household income is not counted as qualifying income, Desktop Underwriter® considers it a compensating factor to allow for a debt-to-income ratio higher than 45%, up to 50%.
 
Lawless’s FM Commentary discusses Fannie Mae’s research findings regarding the availability of “extra” income in extended households, stability of household income, and the potential impact on loan performance of allowing consideration of some non-borrower household income. For more information, view the full research paper and access HomeReady resources.
 
Also, read about the man behind the research: how a Fannie Mae researcher “stumbled onto” his work on extended-income households.