expanding homeownership responsibly with freddie mac home ... · percentage of millennials with a...
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Expanding Homeownership Responsibly with
Freddie Mac® Home Possible
March 23, 2017
© Freddie Mac 2
A Better Freddie Mac …and a better housing finance system
For families
...innovating to improve the liquidity, stability and
affordability of mortgage markets
For customers
...competing to earn their business
For taxpayers
...reducing their exposure to mortgage risks
© Freddie Mac 3
Offering financing solutions to help qualified borrowers
become homeowners
» For low- and moderate-income households
» For first-time homebuyers
Supporting underserved markets
» Rural housing
» Manufactured housing
Working with housing finance agencies
Forming alliances across the industry to create ownership
opportunities
Conducting education and outreach
Providing resources, training, and tools
Advancing Affordable Lending
© Freddie Mac 4
2016 First-Time Homebuyer Demographics
Share slipped 32% in 2016 – Well below the historical
norm of 40%
Median age – 30; Median income - $77,400
Down payment sources – 81% savings; 27% gifts from
friends or relatives
Typical FTHB home: 1,720 sq. ft.
FTHBs plan to stay in homes for 10 years
First Time Homebuyers
32%
Repeat Homebuyers
68%
2016 Homebuyers
Married 67%Single Female
15%
Single Male 9%
Unmarried Couple 7%
Other 2%
Source: National Association of Realtors
2016 Home Buyer and Seller Generational
Trends
First-time homebuyers
© Freddie Mac 5
15.9
27.6
39.2
5.510.1
17.2
0
10
20
30
40
50
2015 2020 2025
(millio
ns)
Households Homeowners
4.6mm new
Millennial
homeowners
by 2020
11.7mm new
Millennial
homeowners
by 2025
Sources: JCHS of Harvard University – chart depicts middle projection (interpolated):
http://www.jchs.harvard.edu/research/publications/baseline-household-projections-next-decade-and-beyond ; Collingwood Group.
Growth in Millennial Households and
Homeowners
© Freddie Mac 6
Hispanics
and Asians
growing
fastest
Growth in Millennial Households
and Homeowners
© Freddie Mac 7
Millennial characteristics
Millennials
AGE 26.3 years
$50,908
636
14%
$4,002
64%
AVERAGE INCOME INSIGHT
AVERAGE
AVERAGE
PERCENT WITH A MORTGAGE
AVERAGE REVOLVING CARD BALANCE
STUDENT LOAN DEBT AS A PERCENTAGE OF TOTAL DEBT
(for those with student debt)
1 in 5 Millennials
are Hispanic:
© Freddie Mac 8
Mortgage Ready= Strong + Moderate
Mortgage readiness – underwriting criteria:
Strong
VantageScore® 3.0 greater than 737
Total DTI < 45%
Moderate
VantageScore® 3.0 between 661 and 736
Total DTI < 45%
Weak
VantageScore® 3.0 less than 661 AND / OR
Total DTI > 45%
Foreclosure in the past 84 months
Bankruptcy in the past 12 months
Severe delinquency (120-180 DPD) in the past 12 months
No foreclosures in the past 84 months
No bankruptcies in the past 12 months
No severe delinquencies (120-180 DPD) in the past 12 months
© Freddie Mac 9
How many millennials are Mortgage Ready?
Millennials
Strong 14%
Moderate 19%
Weak 50%
Have a mortgage 14%
Unscorable 3%
24,508,934
Strong + Moderate
Mortgage Ready Millennials
19%
23%22%
26%
Age Distribution of Weak Segment:
18-21
22-25
26-29
30-34
29.1%
70.5%
Near-Moderate in Weak Segment:
601-660< 601>660
VantageScore® 3.0
range:
© Freddie Mac 10
Mortgage Ready millennials in Minneapolis
MSA
Variables ↓, Metro-Areas →
Minneapolis MSA (Minneapolis-St. Paul-Bloomington, MN-WI)
Percentage of millennials in the metro area a 32%
Percentage of millennials with a mortgage b 22%
Percentage of millennials mortgage ready c 41%
Percentage of mortgage-ready millennials that can afford SF d 51%
Percentage of mortgage-ready millennials that can afford condo e 87%
Housing Stock (Inventory/Sales) f 1.76
Note: Experian data for Dec 2015 to investigate mortgage ready millennials. Data combines anonymized individual credit bureau data with marketing data to obtain race/ethnicity
associated with each individual and is weighted by American Community Survey’s (ACS) Public Use Microdata Sample (PUMS) data. Housing Stock data from Redfin for the month of
May 2016.
a. Calculates the share of millennials in the metro area.
b. Calculates the percentage of the millennials in the metro area that have at least one mortgage trade.
c. Calculates the percentage of the millennials in the metro area that are mortgage ready. Please refer to slide 3 for definition.
d. Calculates the percentage of the mortgage ready millennials in the metro area that can afford a median-priced single family house. The calculations are based on affordability
indicators such that if the quarterly gross income exceeds the annual mortgage payment on a median priced single family house (under the assumption of 10% down payment, 4%
interest rate and 30 year contract), then the house is affordable.
d. Calculates the percentage of the mortgage ready millennials in the metro area that can afford a median-priced condo. The calculations are based on affordability indicators such
that if the quarterly gross income exceeds the annual mortgage payment on a median priced condo (under the assumption of 10% down payment, 4% interest rate and 30 year
contract), then the condo is affordable.
e. Housing Stock indicator =Inventory/Sales. Includes single-family, condo and townhomes. Industry Rule-of-thumb is if the ratio exceeds 6, then stock is adequate, otherwise it is not.
© Freddie Mac 11
Minneapolis MSA amongst top 15 metro areas
with mortgage-ready millennials
Note: Experian data for Dec 2015 to investigate mortgage ready millennials. The Housing Stock data is from Redfin for the month of May 2016.
© Freddie Mac
Agenda
Key Selling Points and
Resources
Sources of
funds
General Requirements
Features and Benefits
Home Possible
© Freddie Mac 13
Responsible, high LTV mortgage options for first-time homebuyers,
low- and moderate-income borrowers and move up buyers
Borrower Profile
First-time homebuyers
Repeat homebuyers
Families in underserved areas
New immigrants
Very-low and low-to-moderate
income borrowers
Home Possible Mortgages – Features and
Benefits
Key Features
Maximum LTV/TLTV:
Home Possible Advantage -
97% LTV / 105% TLTV
Home Possible – 95% LTV /
95% TLTV
Eligible annual income of up to
100% of Area Median Income
(higher in high cost areas)
No income limit in Underserved
Areas
Homebuyer education only
required for one borrower when
all borrowers are First-Time
Homebuyers
Borrower Benefits
Low down payment
No minimum borrower
contribution from personal
funds
Flexible down payment and
closing cost funding options
No cash-out refinancing
No reserves required on 1
unit owner-occupied
properties (2 months reserves
on 2-4 units)
Homebuyer education
available at no cost to the
borrower
© Freddie Mac 14
Eligibility Criteria Home Possible Home Possible Advantage
Eligible Mortgages
− 15-, 20- and 30-year fixed− 5/1, 7/1 and 10/1 CMT- and LIBOR-
indexed ARMS− Construction Conversion and Renovation
Mortgages
− 15-, 20- and 30-year fixed− Construction Conversion and Renovation
Mortgages
Occupancy Primary residence Same
Property Type1- to 4- units: Single-family, Condos, PUDs, Manufactured Housing (1-unit primary residences only)
1-unit: Single-family, Condo, PUD
Underwriting Method Loan Prospector or Manual Same
Other Income
Boarder income (1-unit properties only) up to 30% of qualifying income from this source allowed if 12 months documentation of recent rent payments and continued rental arrangement included
Same
Fund Sources for Down Payment & Closing Costs
Gifts, grants, Affordable Seconds Same
Home Possible Mortgages Eligibility Criteria*
* See Freddie Mac Single-Family Seller/Servicer Guide for details.
© Freddie Mac 15
General Requirements
Area Median Income (AMI) Limit:
The maximum allowed qualifying income based on the median income
for the area in which the mortgaged premises is located
Guide Chapter 4501
Affordable Income and Property Eligibility
*All stable monthly income for all borrowers for qualifying. The Seller must attempt to verify all income reported on the
Form 65, Uniform Residential Loan Application, in accordance with the Guide. Any discrepancies, including
underreported income, must be corrected before submitting the mortgage to Loan Prospector. All income reported on
the Form 65 that has been verified and that meets the criteria for stable monthly income as described in Chapters 5300-
5305 must be used to qualify the borrower and submitted to Loan Prospector® for Loan Prospector Mortgages.
Qualifying Income* up to 100% of the AMI
Higher AMI limits in designated High Cost Areas
Lifted in Underserved Areas
© Freddie Mac 16
Home Possible Income & Property Eligibility Tool
www.FreddieMac.com/Home
Possible/eligibility.html
© Freddie Mac
Home Possible Income & Property Eligibility Tool
17
© Freddie Mac
Home Possible Income and Property Eligibility Tool
18
© Freddie Mac
Home Possible Eligible Census Tracts -
Minneapolis
19
© Freddie Mac
Home Possible Eligible Census Tracts –
St. Paul
20
© Freddie Mac 21
What is an “Underserved Area”?
Underserved Areas are determined at the census tract or county level on the
basis of median income, minority population level and disaster area
designation. An Underserved Area is defined as any of the following:
Low income tract: Census tracts or block numbering areas in which
median income does not exceed 80% of the AMI.
Disaster area designation: Disaster areas are designated at the county
level by FEMA. A county will be treated as a designated disaster area for
three years, beginning January 1 after the FEMA designation.
Minority census tracts: Census tracts that have a minority population of
at least 30%.
When a property is located in a designated Underserved Area, AMI
requirements do not apply. The Home Possible Income Limit shown in the
eligibility tool will say “No Limit”.
© Freddie Mac 22
Number of UnitsMinimum Contribution from Borrower Personal Funds
Reserves
Home Possible Advantage
1-unit primary residence,
that is not a Manufactured
Home
None required None required
Home Possible Mortgages
LTV/TLTV/HTLTV
< 80%
LTV/TLTV/HTLTV
> 80% < 95%
1-unit primary residence None required None required None required
2- to 4-unit primary residence None 3% 2 months
Manufactured Home None None required None required
Features and Benefits: Borrower Contribution
and Reserves
Guide Chapter 4501
© Freddie Mac 23
Flexible Sources of Funds
Flexible
Sources of Funds
Financing Concessions» 3% of value for LTV/TLTV ratio > 90%
» 6% of value for LTV/T LTV ratio > 75% < 90%
» 9% of value for LTV/TLTV ratio < 75%
Unsecured Loan: Originating Lender (Refer to Guide Section 4204.3(b))
Borrower Personal Funds
From the Single-Family Seller/Servicer Guide
Chapter 4501
IDA: include matching funds only if
not subject to recapture tax
Rent Credits
Trade Equity
Community Savings
deposited by the Borrower
Depository accounts
Loan secured by Finan Asset
Sale of Borrower Asset
Cash on hand
Trust disbursement
Pooled funds
Credit card charges, cash advances or unsecured line
of credit to pay fees associated with the Mortgage
application process (Refer to Guide Section 4501.10)
Other
Borrower Funds
Gifts–Related Person
Gift/Grant: Agency or Seller(as the originating lender)
Affordable Seconds
Secondary Financing (must be Affordable Second)
Employer Assisted Homeownership Benefit
IDA: matching funds subject to recapture tax
Unsecured loan: Agency/Related Person or Community Savings Systems (funds in excess of Borrowers contribution)
Sweat equity (once 5% downpayment from personal funds has been met)
© Freddie Mac
Subsidized secondary financing or
other financial assistance, evidenced in
land records, that is provided by an
Agency and that meets the
requirements of Section 4204.1
Sources of Funds: Secondary Financing
*Home Possible Advantage secondary financing source
must be an Affordable Second, and it may not be a home
equity-line-of-credit
Note: RHS Leveraged Seconds are not permitted with Home
Possible Advantage
Variety of sources such as:
a municipality which includes any duly
authorized authority or agency of the
federal, state, local or municipal
government; a nonprofit community or
religious organization (other than a
credit union); the borrower’s employer;
or a Regional Federal Home Loan Bank
under one of its affordable housing
programs that meet the requirements of
Guide Chapter 4204.
Evidenced in land records
www.FreddieMac.com/singlefamily/expmkts/affprod.html
Affordable Seconds®*
Guide Chapter 5501
© Freddie Mac
When all borrowers are first-time
homebuyers, at least one
qualifying borrower must
participate in a homeownership
education program before the Note
Date*
» A copy of a Homeownership Education
Certification, or another document with
comparable information, to be retained
in the mortgage file
2- to 4-unit primary residence
(Home Possible only): At least one
qualifying Borrower must
participate in a landlord education
program before the Note Date*
» A copy of a certificate evidencing
successful completion of the landlord
education program must be retained in
the Mortgage file
This requirement stresses the importance of utilizing a curriculum that contains the minimum
core content specified by the National Industry Standards for Homeownership Education and
Counseling. These standards help ensure quality education and counseling is delivered with
fairness and respect to homebuyers and homeowners
Homeownership Education
Guide Chapter 4501
*or the Effective Date of Permanent Financing for Construction Conversion and Renovation Mortgages
Purchase Transactions Required:
Post-purchase and Early Delinquency Counseling
© Freddie Mac 26
Key Selling Points and Resources
© Freddie Mac 27
Key Selling Points
High LTV – No minimum down payment
Higher AMI limits (100% AMI;100%+ in high cost areas)(not just
80% AMI) means broader borrower income eligibility so
more borrowers will qualify
No income limit on properties located in Underserved
Areas
Flexible sources of funds
Free homebuyer education – Credit Smart
Can use Loan Product Advisor to provide greater
certainty that the loan meets purchase requirements
© Freddie Mac 28
Why choose Home Possible over FHA?
Mortgage Insurance
Stays for the life of the loanEnds when LTV < 80%
FHA: Upfront AND monthly
premiums
Conventional MI: monthly
OR single premiums
Down payment funds applied
to principal AND upfront PMI
Down payment funds
applied to principal
WHAT THIS MEANS: With more funds applied toward the
principal upfront, a Home Possible mortgage with PMI lets the
borrower build equity faster.
Home Possible FHAvs.
Required regardless
of the LTV
Only required if the LTV is 80%
or higher
© Freddie Mac 29
For more information on Home Possible
FreddieMac.com/homepossible
FreddieMac.com/learn/mp/homepossible.html
© Freddie Mac 30
Website for consumers on renting, buying and owning a home
My Home by Freddie Mac
MyHome.FreddieMac.com
© Freddie Mac 31
Financial education curriculum
» 12 financial education modules
» Available online and in multiple
languages
» Use CreditSmart workshops to
gain entry to realtor shops
» Counts for CRA credit
CreditSmart®
FreddieMac.com/
CreditSmart
© Freddie Mac 32
Work with trusted national nonprofit intermediaries
Support Freddie Mac’s ongoing commitment of:
» Preparing prospective buyers for responsible homeownership
» Helping struggling borrowers with Freddie Mac-owned mortgages
avoid foreclosure
HUD-certified counselors
13 Borrower Help Centers across the country (Phoenix, Ontario,
Los Angeles, Miami, Orlando, Ft. Lauderdale, Atlanta, Chicago (2),
Metropolitan Washington, DC, Detroit, Las Vegas, New York City)
Work with lenders in minority and underserved communities
Freddie Mac Borrower Help Centers
and National Network
© Freddie Mac 33
Down Payment Resource Website - Helps lenders connect their
borrowers with homeownership programs that can help with down
payment.
Down Payment Assistance
* Available on FreddieMac.com
DownPaymentResource.com/are-
you-eligible/
© Freddie Mac
Marketing Materials You Can Use
FreddieMac.com/purchasemarket
© Freddie Mac
FreddieMac.com/RealEstatePros
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© Freddie Mac
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© Freddie Mac 37
Low interest rates and lower home prices will continue
homebuyer affordability
Build business from first-time homebuyers
Prepare for changing demographics
Qualified first-time homebuyers need your help to overcome
misconceptions and concerns
Freddie Mac provides a wide variety of products and
offerings to help you attract well-qualified buyers
What does this all mean for
YOU and YOUR borrower?
37
© Freddie Mac 38
&QA