Presenters
• Host: National Development Council
• Moderator: TBD
• Presenters:
– Craig Nickerson, National Community Stabilization Trust
(NCST)
– Rob Grossinger, Enterprise Community Partners
(Enterprise)
2 U.S. Department of Housing and Urban Development • Community Planning and Development
NSP Financing Webinar Series
• #1 – Lessons Learned from Mortgage Financing
Roundtables – January 19th
• #2 – Deeper Dive on Mortgage Financing Tips – January
24th
• #3 – Leveraging NSP Funds to Attract Interim Financing
– February 2nd
3 U.S. Department of Housing and Urban Development • Community Planning and Development
Additional Resources
• Guide to Understanding Mortgage Financing for NSP-
Assisted Homebuyers
• Interim Financing for Neighborhood Stabilization
Programs
4 U.S. Department of Housing and Urban Development • Community Planning and Development
Webinar Objectives Today
• Separate fact from fiction regarding single-family
mortgage lending underwriting guidelines
• Identify ways local program design can affect the
availability of single-family mortgage capital
• Illustrate ways to effectively structure soft second
programs
• Identify strategies to overcome key obstacles to
accessing mortgage capital for your NSP homebuyers
5 U.S. Department of Housing and Urban Development • Community Planning and Development
Overview: Mortgage Financing Roundtables
• At HUD’s request, Enterprise and NCST facilitated a
dialogue to identify ways to increase lending in NSP
neighborhoods
• Six regional sessions last summer
– Chicago, Orlando, Los Angeles
– Sacramento, Newark and Atlanta
• Small interactive discussions between grantees and
lenders
– 96 grantees
– 51 lender representatives
6 U.S. Department of Housing and Urban Development • Community Planning and Development
Assessing Private Capital Needs Results
• Prior to Roundtables, Enterprise and NCST conducted
assessment to understand the obstacles grantees face
in securing mortgage capital – 174 respondents
– Over 75% experienced problems with accessing
permanent mortgage financing for NSP homebuyers
– Creditworthiness is the primary issue that inhibits
homeownership for potential NSP homebuyers
– Most grantees use FHA mortgage products for buyers of
NSP properties
– Majority believe lenders know very little to nothing at all
about federal and local NSP efforts
7 U.S. Department of Housing and Urban Development • Community Planning and Development
5 Key Takeaways from Roundtables
1. Securing permanent mortgage financing for prospective
buyers is a daunting challenge for most grantees (75%
of 174 assessment respondents)
2. Tighter credit standards in the wake of the crisis is the
biggest obstacle to getting borrowers into NSP homes
3. Subordinate financing structures that meet NSP
requirements may not fit with lender rules, thus
preventing or delaying approval of soft second
financing
8 U.S. Department of Housing and Urban Development • Community Planning and Development
5 Key Takeaways from Roundtables
4. Low or inaccurate appraisals have become a major
issue for grantees, precluding many mortgage deals
5. Misinformation about NSP efforts is preventing progress
– a better understanding of NSP among real estate
professionals, appraisers, local lenders is critical to
success
9 U.S. Department of Housing and Urban Development • Community Planning and Development
Today’s Lending Landscape
• Fewer mortgage originators
– National / Regional / Community / Credit Unions
• A return to basics – more responsible mortgages and
fewer exotic offerings
– Resurgence of FHA as a preferred product option
– Renewed reliance on GSE secondary market guidelines
(Freddie Mac and Fannie Mae)
– Return to underwriting fundamentals and tighter credit
standards
– Emergence of some NSP portfolio products
10 U.S. Department of Housing and Urban Development • Community Planning and Development
Return to the 3Cs
• Credit
– Credit score minimums are much higher, especially for
conventional mortgages
– Less reliance on compensating factors
• Capacity
– Debt-to-income (DTI) ratio tightening
– Implications for soft seconds
• Collateral
– Loan-to-value (LTV) ratio
– Borrower “skin in the game”
11 U.S. Department of Housing and Urban Development • Community Planning and Development
NSP Program Design Options
Mortgage options vary depending on the program
design option:
• Option 1 - Direct to Homebuyer: the homebuyer
purchases the foreclosed or abandoned property directly
from financial institution, often with downpayment or
other subsidy assistance
• Option 2 - Turnkey: NSP grantee or designee
purchases, renovates and sells the property to a
qualified homebuyer
12 U.S. Department of Housing and Urban Development • Community Planning and Development
Direct to Homebuyer Approach
• Use when:
– Properties being purchased are in relatively good physical
condition
– High demand for homes exists
– Sufficient financing is available for purchase and/or
purchase/rehab mortgages
– FHA 203(k) often employed with this option
– Alternatively, subordinate public/private capital is available
for property renovations
13 U.S. Department of Housing and Urban Development • Community Planning and Development
Turnkey Approach
• Use when:
– Purchase/rehab mortgages are not easily accessible
– Level of renovation is too extensive
– Newly renovated properties are needed to attract
potential homebuyers
– Speed and efficiency of execution is essential
– NSP and other public/private investments are
available for property redevelopment
– Mortgage lender hesitancy in distressed areas exists
14 U.S. Department of Housing and Urban Development • Community Planning and Development
Key Takeaways: Program Design
• Identify the type of financing that is readily available in
your market, before you design your program
• Many lenders are uncomfortable with the risks
associated with property repairs as part of the long-term
mortgage
• Determine the level of involvement grantee can have
with the rehabilitation of property if purchase/rehab
product will be used
15 U.S. Department of Housing and Urban Development • Community Planning and Development
Homebuyer Assistance Options
• NSP fund flexibility can help homebuyers qualify for
mortgage financing
• Understand the mortgage qualifying obstacles you need
to help overcome
• Is the primary obstacle
– Monthly carrying cost of PITI?
– Lack of cash for closing and downpayment?
– Impaired credit or past foreclosure or bankruptcy?
16 U.S. Department of Housing and Urban Development • Community Planning and Development
Cash-to-Close Options
• Downpayment and closing cost assistance
• Principal reduction or gap financing
• Interest-rate buydown
• Seller concessions
• Alternative borrower contributions (gifts, retirement)
• Mortgage Credit Certificates
• Repayment options – Keep it simple!
17 U.S. Department of Housing and Urban Development • Community Planning and Development
Credit-Challenged Options
• Government loan guarantee
• Cash or cash-equivalent reserves
• Co-borrowers (but be careful)
• Continued credit counseling
• Lease to own
18 U.S. Department of Housing and Urban Development • Community Planning and Development
Soft Second Structures
• Recapture
– Used to recover all or a portion of the NSP soft second
assistance when the property is sold or transferred
• Resale
– Used to ensure NSP-assisted properties remain affordable
under the full term of the affordability period, even after
sale or transfer
– A property covenant or deed restriction is established
– Will typically slow down or prevent loan originator approval
19 U.S. Department of Housing and Urban Development • Community Planning and Development
GSE Soft Second Requirements
GSE Soft Second rules quite flexible
• If interest is charged on the subsidy, the interest cannot be higher
than 2 points above the interest of the first mortgage
• Accrual of interest is not allowed during period when payments on
the loan are deferred (negative amortization)
• CLTV (combined loan-to-value) of the first mortgage and other
subordinate financing cannot generally exceed 105% of property
value
• No balloon payments due prior to end of first mortgage term
20 U.S. Department of Housing and Urban Development • Community Planning and Development
GSE Soft Second Requirements
• Other requirements can be found at:
– Fannie Mae Community Seconds checklist:
https://www.efanniemae.com/sf/mortgageproducts/pdf/csc
hecklist.pdf
– Freddie Mac Affordable Seconds:
http://www.freddiemac.com/sell/expmkts/affsec.html
21 U.S. Department of Housing and Urban Development • Community Planning and Development
FHA Soft Second Requirements
• Subordinate lien must be in the subsidy provider’s name
• If second mortgage is offered by government agency or
nonprofit designee, the soft second may be used for
downpayment, closing costs including the borrower’s
minimum investment
• If resale restrictions are in place, those restrictions must
terminate in the event of a foreclosure or deed-in-lieu
22 U.S. Department of Housing and Urban Development • Community Planning and Development
FHA Soft Second Requirements
• Other requirements can be found at:
– Downpayment Assistance through Secondary Financing
Providers:
http://portal.hud.gov/hudportal/HUD?src=/program offices/
housing/sfh/np/sfhdap01
23 U.S. Department of Housing and Urban Development • Community Planning and Development
Soft Second Program Design Pointers
• Deferred loans are the cleanest subordinate financing
structures
• Zero interest (interest rate accrual on a DPL is a no-no)
• Payment deferred for the first 5 to 10 years
• No payment at all for the entire term of the loan unless
property is sold or transferred
• In weak markets, forgiveness of deferred loan, either
partially or fully over a period of time
• Deeper dive next webinar – January 24th
24 U.S. Department of Housing and Urban Development • Community Planning and Development
FHA or Conventional?
The answer is . . . It depends!
The right path will depend on many factors, including:
• The Loan To Value
• Borrower contribution
• Market area
• Lender preferences
• Soft second structure and nonprofit provider
• Whether rehab is part of the purchase mortgage
25 U.S. Department of Housing and Urban Development • Community Planning and Development
Property Appraisals
• Major mortgage issue that surfaced at Roundtables
• NSP homes too frequently do not appraise for true value
– Means that NSP grantees cannot sell homes
– Prospective buyers cannot obtain a mortgage
• Appraisers often are poorly informed on neighborhood
stabilization programs
• Appraisers rely on “comps” that are not comparable;
using blighted homes or cosmetically repaired homes
• HVCC regulation prohibits lenders from having direct
communication with appraisers on property level
26 U.S. Department of Housing and Urban Development • Community Planning and Development
Key Takeaways: Property Appraisals
• Meet with lenders and AMC’s to increase accountability
and reduce number of participating appraisers
• Seek program wide pre-approval of approaches with
lenders, GSEs, state HFAs
• Educate appraisers on NSP homes – quality, green
construction, energy efficiency – to help create fairer
valuations
• Create informational materials – brochures, FAQs, cheat
sheets – for appraisers highlighting the key features of
your properties
27 U.S. Department of Housing and Urban Development • Community Planning and Development
Key Takeaways: Property Appraisals
• Conduct training for the appraisal industry on NSP
• Focus on rehabbing specific blocks so you can control
the comps and valuations by increasing the value of
targeted blocks
• Encourage state appraiser licensing boards to convene
meeting on NSP valuations
• Long term, create special designation for community
stabilization appraisers (i.e. NSP Appraiser)
28 U.S. Department of Housing and Urban Development • Community Planning and Development
Collaborating with Real Estate Professionals
• Grantees are finding it difficult to market NSP homes
• Building strong relationships with real estate
professionals in the community is key component to a
successful program
• Can lead to a well-coordinated program that provides
tangible benefits to real estate professionals,
homebuyers and the community
• Real estate professionals can market homes and
rebrand neighborhoods too
29 U.S. Department of Housing and Urban Development • Community Planning and Development
Key Takeaways:
Real Estate Professional Collaboration
• Real estate staff often steer clear of red tape of federal
housing programs
• Educate real estate professionals on the positive
attributes of the NSP program and homes
• Engage local Realtor boards – have participating lenders
speak at training
• Create a list on your website of active/certified real
estate professionals who have completed a few
transactions
30 U.S. Department of Housing and Urban Development • Community Planning and Development
Conclusion
• Mortgage underwriting has become more stringent; it’s a
return to the basics
• High LTV lending is still possible with borrower skin in
the game, truly soft seconds, and borrower readiness
• Turnkey NSP programs where the renovation is
completed prior to sale make attracting mortgage
financing easier
• Keep soft second program designs simple to understand
and implement
• Ensure that all key housing industry partners are
informed and accountable.
31 U.S. Department of Housing and Urban Development • Community Planning and Development
Questions and Answers
32 U.S. Department of Housing and Urban Development • Community Planning and Development
A Preview of Coming Attractions
January 24th – A Deeper Dive on Mortgage Financing
webinar session will explore some key issues in more
detail
January 31st – Leveraging NSP Funds to Attract Interim
Financing webinar session will illustrate ways to expand
the scope and scale of NSP projects with creative
financing mechanisms
33 U.S. Department of Housing and Urban Development • Community Planning and Development