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Agencies aim to standardize ‘first-generation homebuyer mortgage’ definition

As more housing and mortgage authorities seek to expand the scope of homeownership to those who have never purchased a home before, the government-sponsored enterprises (GSEs) and the Federal Housing Finance Agency (FHFA) are taking a step to more narrowly define the term “first-generation homebuyer mortgage,” according to a bulletin released on Wednesday by Freddie Mac.

“Intergenerational wealth refers to the financial assets passed by one generation of a family to another. Wealth disparities among historically underserved consumers are often linked to the absence or interruption of intergenerational wealth accumulation that is primarily achieved through homeownership,” the bulletin stated.

First-generation homebuyers as a cohort are “less likely to receive financial assistance from parents to help with the down payment and other upfront costs when purchasing a home,” according to Freddie Mac. This has led to the development of policies by state and local housing finance agencies to aim assistance specifically at this group, particularly for “mortgage eligibility or down payment and closing costs assistance.”

Under the guidance of FHFA, Freddie Mac and Fannie Mae are aligning to create “an industry standard for first-generation classification,” specifically for the term “first-generation homebuyer mortgage,” which was initially laid out in the revised equitable housing finance plan from Freddie Mac.

To be defined as a first-generation homebuyer mortgage, each borrower must be purchasing the mortgaged property; must reside on the premises as a primary residence; and has “had no ownership interest (sole or joint) in another property during the last three years preceding the note date,” the bulletin explained.

Additionally, one of the following attributes also must apply: no parent of the borrower has had an ownership interest in a property in the past three years preceding the note date, the borrower has aged out of foster care, or has become emancipated.

Identification of a loan under these conditions is currently optional, the bulletin explained. But if a lender chooses to deliver a loan as a first-generation homebuyer mortgage, then each borrower involved in the loan will need to sign a new form, 1109, which confirms their eligibility under the new definition’s criteria, the bulletin stated.

Freddie Mac also composed a fact sheet for the new definition, including frequently asked questions on the topic that lenders can reference. One such question specifies that all borrowers involved in the loan must meet the eligibility criteria for their mortgage to be considered a first-generation homebuyer mortgage.

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