The North Carolina Institute of Minority Economic Development

NCIMED 1

April 27, 2010Economic Impact of Housing on the Underserved

The Institute

Who We Are

About the InstituteAbout the InstituteAbout the InstituteAbout the Institute

The North Carolina Institute of Minority Economic

Development (“The Institute”) is a statewide nonprofit

organization. The Institute works to build the asset base of

underutilized and undeveloped populations through economic

development strategies that build businesses and sustain

institutions vital to vibrant communities. Since inception in

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institutions vital to vibrant communities. Since inception in

1986, the Institute has published more than 15 studies/reports.

Over the past five years (2004-2009) its business development

clients have realized more than $225 million in contracts and

financial transactions.Andrea L. Harris, President

Critical Observation

• Underserved Homeownership Shift

• GSE’s and FHA Pricing and Fees

• Unemployment and Foreclosures

• Demographic Landscape Transformation• Demographic Landscape Transformation

• Commercial Property Impact

• Projected Forecast

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Impact Of GSE Delivery Fees - $250,000 Home, 95% Loan

FICO Score

Total LLPA

% -a) Total LLPA $

Borrower

Note Rate

Impact

Borrower

Payment

Impact

Affordable

Home Impact

Loss of

Affordability

Loss of

Affordability

%

>= 740 0.25% $594 0.06% $9 $248,820 $1,180 0.5%

720 - 739 0.25% $594 0.06% $9 $248,820 $1,180 0.5%

700 - 719 0.75% $1,781 0.19% $28 $246,570 $3,430 1.4%

680 - 699 1.00% $2,375 0.25% $37 $245,454 $4,546 1.8%

660 - 679 2.00% $4,750 0.50% $75 $241,058 $8,942 3.6%

640 - 659 2.50% $5,938 0.63% $93 $238,898 $11,102 4.4%620 - 639 3.00% $7,125 0.75% $112 $236,765 $13,235 5.3%

Assumptions:Base Note Rate: 5.25%

Home Price $250,000

1 2 3 4 65 7

Loan-To-Value % 95%

Loan Amount $237,500

HDTI Ratio 31%

Example 95% LTV Loan to a FICO 680 borrower:

GSE delivery fees sum to 100 basis points, or $2,375 on the $237,500 loan amount

Lender must charge as points to borrower (additional cash at closing) or "premium price" into note rate

Estimated amount of note rate increase required to generate 100 basis points of additional loan price is 25 basis points

Monthly payment increase created by the additional note rate is $112

Borrower who could have afforded a $250,000 home now limited to $245,454 due to LLPA fees.

Loss of affordability due to LLPA fees.

Loss of affordability due to LLPA fees, expressed as a percent of $250,000 original home price

1

2

3

4

5

6

7

*Fannie Mae– Adverse Market Delivery Charge, LLPA by Credit Score/LTV*Freddie Mac– Post-Settlement Delivery Fees, Market Condition, Indicator Score/LTV

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Conventional Loan LLPA Fee Impact

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

$5,000

Ad

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Series1

Series2

Series3

Series4

85% LTV

95% LTV

90% LTV

97% LTV MCM

$0

$500

$1,000

$1,500

$2,000

620 - 639 640 - 659 660 - 679 680 - 699 700 - 719 720 - 739 740+

FICO Scores

Ad

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Series4

Series5

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97% LTV Flex

Source: NCIMED

FHA Max

Financing

Down Payment 3.5%

Coverage 100%

UFMIP 1.75%Monthly MI Premium 0.55%Sales Price 150000 150000Base Note Rate 5.25% 5.25%

Yield Spread Premium over FHA 0.00% 0.00%

Premium Pricing of Closing Costs 4.0 0.00%

Delivery FeesJumbo Premium 97% MCM Premium 0.00%Adverse Mkt Premium 0.25%< 740 Premium

Total Delivery FeesNote Rate Impact of Delivery Fees 4.0

Total Note Rate 5.25%

Term 360 360

Closing Costs

Loan Origination* 1.00% 1,500 Loan Discount Points 0.00% - Buyer's Attorney* 450 450 Title* 0.75% 1,125 Appraisal* 275 350 Survey* 150 150 P&C Insurance 0.50% 875 Taxes 2.00% 500 Recording* 20 20 Tax Service* 75 75 Credit Report* 50 50 Seller Contribution Credit From Note Rate Premium 0% - Total Closing Costs 5,095 *Non-Recurring (financable) Cost 3,720

Max Base LTV (for Premium rating purposes) 96.50%

Minimum Down Payment 5,250 Non-financed Closing Costs 5,095 Total Cash to Close 10,345

New FHA

Max

Financing

3.5%100%

2.25%0.55%

150000

5.25%

0.00%

0.00%

0.00%

5.25%360

1,500

- 450

1,125

350 150

875 500

20

75 50

- 5,095

3,720

96.50%

5,250

5,095

10,345

UFMIP1.75%

$2,533.00

Increased

2.25%

Increased

$3,257

Impact of the New FHA Changes

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Total Cash to Close 10,345

Base Loan 144,750 UFMIP 2,533

Financable Closing Costs Total Loan Amount 147,283 Total LTV% 98.2%

Monthly Payment

P&I 813 Monthly MI 66 P&C and Taxes 2.5% 313 Total Monthly Payment 1,192

Months to amortize to 100% LTV

Total Cash to Close 10,345 Minimum Borrower's Cash Investment 3.5%

5250Max Seller Contribution 6%

9,000

Cash Net of Allowable Seller Contribution 5,250

Borrower Income Needed

Payment for Ratio Purposes: 1,126 Income Ratio 31%Gross Monthly Income 3,631.62 Annual Income to Qualify 43,579.47

Cash To Close Tie Out 10,345

Minimum Down Payment 5,250

Seller Contribution 5,095

Closing Funds from Borrower (3,905)

144,750

3,257

148,007

98.7%

817

66

313

1,196

10,345

3.5%5250

3%

4,500

5,845

1,130

3,644.51

43,734.17

10,345

5,250 5,095

595

Max Seller Contribution$9,000.00

Cash to closes

($3,905)

$3,257

Decreased

$4,500

Decreased

$595

African American or Black 23.8%

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• Causes– Under current policies, deficits will likely exceed $1 trillion in

2010 and 2011 and remain near that figure thereafter– Bush-era tax cuts; War in Iraq and Afghanistan are the dominate

driver of the deficits; TARP, Fannie, Freddie and Stimulus represents a minimum deficit increase

• Effects

Deficits: Cause and Effect

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• Effects– Greater Budget Cuts and Reduction will matriculate from the

federal level to state and local government impacting all sectors– Unemployment and foreclosure projected increase in 2010, 2012

and 2013 will reduce tax revenue resulting in additional stress on the economy

Unemployment and Foreclosures

High unemployment

High foreclosure

Source: CBPP analysis based on Congressional Budget Office estimateSource: NCIMED

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Reset Forecast

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Community Impact

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Community Impact

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Projected African-American and

Latino Foreclosures

Foreclosures between 2009 and 2012:

� African-Americans-1,115,189

� Latinos-1,480,285

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Predatory LendingHome Foreclosure

Limited Access to

Capital / Credit

Reduced Buying Power

MinorityWealth

Negative-Impact

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Deteriorating Minority Economics

Personal Wealth

Future Credit / Wealth

Community Wealth

Minority Business

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Limited Access to CapitalLimited Access to Credit

Impact of Minority Foreclosure

Limited Access to

Capital / Credit

Reduced Buying Power

MinorityBusiness

Negative-Impact

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Deteriorating Minority Economics

Reduction of Personal

and Business Wealth

Loss of Future Credit / Wealth

Community Reinvesting

and Jobs Creation

Loss of Minority Business

and Services

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• Evaluation – All aspect of the business – All business methodology are aligned with the

core function and market segment

• Preparation – Update and organize all reporting systems

Strategic Focus

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– Update and organize all reporting systems and files

– Update, adjust or amend short-term and long-term strategies to reflect current economy condition and worse case projected forecast.

Strategic Solution

• 400 Billion Dollar infusion into Small Businesses

• Develop Regional MSA Lending Pools

• Balance affordable Risk with Capital• Balance affordable Risk with Capital

• Remove Toll-Gates to access Liquidity

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Building Economically Vibrant and Socially

Responsible Communities through

Research and Information, Education and

Training, and Business Development

NC Institute of Minority Economic Development

Victor A. Galloway Director of Special Research & Policy Projects

vgalloway@ncimed.com

NC Institute of Minority Economic Development

114 West Parrish Street

Durham, NC 27701

919-956-8889

www.ncimed.com

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