1 you’re part of something big! workforce housing specialist

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You’re part of something big!

Workforce Housing Specialist

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Introductions

Gary Johnson,

Bank of Kansas City

913-317-8300

Ron Yaffe, KCRAR

816-536-1123

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Today’s Agenda

• Funding Background

• Marketing Opportunities

• Barriers to Homeownership

• Fannie Mae & Freddie Mac Solutions

• Predatory Lending & Mortgage Fraud

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Suppliers of funds to conventional mortgage lenders

Fannie Mae & and Freddie Mac?

Private companies with public missions

• Consumer gets a mortgage from a bank or lender, Fannie Mae purchases mortgages and sells to investors

• Banks and lenders receive cash from Fannie Mae to repeat the process

• Results in lowest rates available!

here lenders & investors buy & sell existing mortgages

Secondary Market

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Benefits of Homeownership

Source: Neighborhood Reinvestment Corp.

• Benefits to the neighborhood– Owners stay in your community longer – 12 years versus

less than 3 years for renters – Owners more likely to attend church, be members of PTO,

block club, are more likely to vote and participate in the political process

– Less likely to have alcohol and substance abuse problems

• Effects on children– More likely to be in school after age 17 – Less likely to become teenage parents– Less likely to be involved in the juvenile justice system

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70%

38%

27%

25%

10%

Source: 2002 Fannie Mae National Housing Survey

Survey Says: Home as an Investment

eople see buying a home as being a safe and potentially lucrative investment

P

Stocks

Mutual funds

Buying a home

Savings or money market

accountIRA or 401(k) plan

Share of Total Household Growth (1995-2010)

20%

80%

All Others Immigrants

Source: Fannie Mae Foundation, 1996

Sizing the Opportunity-New Americans

Immigrants willaccount for nearly 1/5 of

total householdgrowth

New Americans

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Non-Traditional

$35

$65

$96

$125

$150 $160$140

$173

$213

$0

$50

$100

$150

$200

Nationally, non-

traditional lending has grown at a compound

rate of 26% from 1994 to

2002.

Source: Inside Mortgage Finance, 2002

$ B

illio

ns

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Non-Traditional

36%47%

60%

20%

29%42%

0%10%20%30%40%50%60%70%80%90%

<=80% AMI <=90% AMI Minority

Non-Traditional

Prime Conv.Conforming

Reaching underserved marketsData from the full year 2001 shows that non-traditional lending is …

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Finding Lenders

• Of the credit-impaired with rates greater

than 10.5% in 2001 49% Answered an

advertisement Over 50% had balloon or pre-payment penalty

This is what you are

competing with!

• How credit-impaired borrowers find their lenders– 29% Answered a

solicitation or ad • (versus 6% of all)

– 22% Family and friends

– 16% Realtor • (versus 20% for

general population)

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Knowledge


Consumer’s knowledge of the home buying process is still a barrier.

All Adults

African Americans

Hispanics Hispanic Immigrants

20% Down Payment

44 54 52 62

Lenders are required to give the best possible rate

39 51 56 64

Neighborhood mortgage brokers give a better deal than large banks

39 45 53 63

You need a perfect credit rating

31 39 59 70

At least 5 years on the job is required to qualify for a mortgage

39 52 58 62

Didn’t know mortgage interest is tax deductible

36 46 43 45

0

10

20

3040

50

60

70

Whites Blacks Hispanics

Per

cen

t (%

)

Comfort with Real Estate Terms

51%58%


77%ot ComfortableN

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25% 27% 24% 32%

23% 25% 27%29%

13% 13% 15%21%

Job security

Finding a home that I like and can afford

Down payment / closing costs

May 1999 July 2000 May 2001

July 2002


Obstacles to Home Buying

Proportion of home buyers saying each is a major obstacle

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Overcoming Barriers

Lack of Funds for Down Payment & Closing

Past Credit Problems

Low & Moderate Income

Au

tom

ate

d

Un

derw

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Fast recommendations and closings

Eliminates uncertainties for buyers and sellers

Gain satisfied customers and more referrals

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DU as an Underwriting Tool

Desktop Underwriter® considers various relevant risk elements rather than limiting the assessment of the case to a few characteristics. This includes:

–Credit Profile

–LTV (MI level)

–Liquid Reserves

–Purpose of Loan

Other Benefits of DU include reduced documentation requirements, detailed Findings and Reporting, underwriting consistency and flexibility, and the limited waiver of representations and warranties.

–Loan Term

–Debt to Income Ratio

–Property Type

–Number of Borrowers

–Employment

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Benefits of Automated Tools

• Fair and objective• Fast recommendations —

• saves time and hassle

• Less paperwork – • streamlined appraisals

• Flexible products – • low down payments • expanded ratios & credit scores

Loans close faster and you get your

commission sooner!

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Benefits to REALTORS

• Productivity– Easier and smoother transactions

• Profitability– Sell more homes with more flexible

financing and less hassles

• Competitive Edge– Easy, practical way to help your

clients be successful

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Flexible Sources of Funds

• Personal Savings

• Gifts, grants or unsecured loans from relatives, employers, public agencies, or nonprofits

• Loans from 401(k) accounts

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Flexible Profile

• Fixed rate

• 5/1, 7/1 and 10/1 ARMs

• Zero or 3% down payment

• Expanded ratios means lower qualifying income

• Loan limit of $333,700

• Owner occupied, single-family homes, condos, and PUDs

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Flexible 97 & 100

• No down payment for Flexible 100– Borrower must contribute

a minimum of $500 toward closing costs.

• 3% down payment for Flexible 97

• Flexible sources of funds – may be used for the 3%

contribution to down payment

• Seller contribution up to 3% allowed for closing costs and prepays.

No income limitation

No geographic limitation

No home buyer counseling

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Product Concept

Level IV - Ineligible for Delivery to Fannie Mae

Level III - Eligible

Level II - Eligible

Level I - EligibleRWC Ineligible

for Delivery To Fannie Mae

RWC Delivered

DU ApprovesDU Approves

Before Now with EA

Ideal financing for credit challenged

he right mortgage at the right price

Expanded Approval is a product in Desktop Underwriter ® that reaches further into the credit spectrum thus enabling approved lenders to approve more loans.

Say “yes” to more borrowers

Offer better pricing compared to a sub-prime execution

Reach a broader audience of buyers/borrowers

Provide loan products tailored to the borrower

“Yes” Rate is 95% vs. 85%

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• Helps consumers with past impaired credit save money – about $220/month on a $100,000 mortgage -- and avoid predatory lenders with a conventional mortgage.

• Enables consumers to finance a home at a rate as much as 2 percentage points lower than would otherwise be available.

• Leverages technology, Desktop Underwriter®, to expand approvals for borrowers with blemished credit histories.

• Rewards 24 consecutive on-time payments with an automatic interest rate reduction of up to 1 percentage point.

Expanded Approval with TPR

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Expanded Approval with TPR

Timely Payment Rewards

What is it?An optional rate reduction feature that rewards consumers making timely payments with a one time rate reduction without the cost of a refinance. Thus encouraging borrowers with past credit problems to improve their payment performance:

What are the Requirements? 24 consecutive monthly

payments without delinquency

Re-test opportunity on third (3rd) and fourth (4th) anniversary

Borrower has never been three

months or more delinquent 1.00% rate reduction for EA-III/Eligible

.50% rate reduction for EA-II/Eligible

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Note: Comparison based on EA/TPR including new A- MI premiums; Execution

normalized to account for MI premium, prepayment parameters, and loan size (as of

7/17/03)

Even with

Higher MI

Premiums

How competitive is EA?

6%

7%

9%

All-in PAR Price Comparison

EA Lender 6.865% 7.525% 7.925%

Subprime A 7.350% 7.950% 8.200%

Subprime B 8.425% 8.775% 8.775%

Level 1 Level 2 Level 3

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•Freddie Mac–Scope–Programs–Similarities, Differences

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Close More Deals with EA

• Key Features No income or geographic restrictions

Flexible debt-to-income ratios

No pre-payment penalties

Fixed rate and 5/1, 7/1 and 10/1 ARMs

LTV’s up to 100% (with $500 minimum borrower contribution

Flexible sources of down payment for 3% minimum contribution on 97% LTV

Automatic rate reduction option

Say “Yes” to more borrowerswith competitive interest rates

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• Suite of financing solutions for low-and moderate-income buyers– Community 97 – Community 100 Plus – Community Solutions

• For teachers, police, firefighters, & health care workers

My Community Mortgage

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Community 100 & Community 100 Plus

Community 100 Community 100 Plus

30-year or less fixed-rate, 7/1 ARMs, 10/1 ARMs(negotiated)

30-year or less fixed-rate, 7/1 ARMs, 10/1 ARMs(negotiated). Available with EEM option.

Owner-occupied, single units Owner-occupied, single units

100% LTV; 105% CLTV with CommunitySeconds; “no cash-out” refis allowed

100% LTV; 105% CLTV with CommunitySeconds; “no cash-out” refis allowed

3% from flexible sources * 1% or $500 (whichever is less) from borrower’sown funds; remainder from flexible sources *

41% single qualifying ratio 41% single qualifying ratioMinimum 660 FICO (or less with documentedextenuating circumstances) or enhanced creditevaluation for traditional or nontraditional credit

Minimum 620 FICO (or less with documentedextenuating circumstances) enhanced creditevaluation for traditional or nontraditional credit

2 months reserves No monthly reserves required (1 month w/EEM)

35% Mortgage Insurance 35% Mortgage Insurance

*gifts, grants, Community Seconds, or borrower funds

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Community Solutions

Expanded Ratios for Firefighters, Policemen, Teachers, and Healthcare Professionals*

* Incentives to Healthcare Professionals require their employers provide an EAH Program

Ratios as high as 45% with 1 month reserves or 50% with 2 months reserves

Reserves may be gifted

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Borrower Eligibility

•Fannie Mae will purchase mortgages made to lawful permanent or nonpermanent residents under the same terms that are available to US citizens•Underwriting flexibilities allow eligible immigrant borrowers to apply for a home loan even if they are only in the process of obtaining permanent residency, or do not have a complete U.S. income and credit history •Community lending products allow for alternative sources of qualifying income such as boarder income and part-time employment•Fannie Mae does not require a borrower to have a social security number

Financing for Legal Aliens

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ewww.fanniemae.com

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The Dark Side of Financing

•Predatory Lending•Mortgage Fraud

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Mortgage Fraud

Missouri: 339.100 (4)

Representing to any lender, guaranteeing agency, or any other interested party, either verbally or through the preparation of false documents, an amount in excess of the true and actual sales price of the real estate or terms differing from those actually agreed

upon.Kansas 58-3062. Prohibited acts. Represent to any lender, guaranteeing agency or any

other interested party, either verbally or through the preparation of false documents, an amount in excess of the true and actual sale price of the real estate or terms differing from those actually agreed upon.

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Red Flags

• Inflated appraisals• “Silent” Second Mortgages• Higher than necessary rates and

fees• Last minute, sudden repair invoices• New immigrants being advised to

falsify information on SS#, citizenship, etc.

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Red Flags

• Items omitted from the HUD-1• No Good Faith Estimate

(or buyer being told not to let REALTOR® see it)

● Request for resubmitting listing to MLS with higher list price

● Mortg. Broker refusal to “put it in writing on their letterhead”

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Red Flags

• Unusual number of addenda to the contract

• Mortgage broker unwilling to speak with agent

• Promises to improve borrower’s credit score

• Misrepresenting source of Buyer’s Down Payment

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Red Flags

• False claims about owner-occupancy

• Undisclosed rebates or funds to any third party

• Falsifying gift letters

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Red Flags

• Falsifying income• Falsifying rental verifications

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What to do

Put everything in the contract!

• Be wary of unusual promises. • Verify the value. • Check the title history. • Know what’s fair and proper with

loans, rates and terms

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When asked to participate in a questionable scheme:

Refuse & Report

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Reporting Fraud

Regulatory Bodies in Missouri

• Lenders/banks, mortgage brokershttp://www.missouri-finance.org/

• Real Estate Appraisershttp://pr.mo.gov/appraisers.asp

● Real Estate Brokers/Agentshttp://pr.mo.gov/realestate.asp

● FBI

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Join us forWHS Certification –

Part II“Taking it to the streets”

•Promote yourself•Increase Sales - Build Referrals•Learn about a powerful new

website•Make a difference in your

community

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FHA

• Stable• Credit scores don’t dominate• Appraisals less burdensome• Prohibitive fees, paid by seller, less than

$100• Gift funds allowed• Loan Limits increased to $271K=KC,

STL=?• No pay off penalty• Not-for-profit DP Assistance still available

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100% Loan-To-Value Programs

• If not becoming extinct, will be expensive

• Freddie and Fannie not in sync• Mortgage Insurance Companies

are either unwilling ot insure or are using aggressive pricing

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CREDIT SCORES

• There are credit scores and credit scores!

• For the same person will vary re: home, vehicle, retail. Public doesn’t understand

that! Credit repair services may be of little or no long term benefit and may

return to previous levels.• Buyers with credit issues = opportunity

to develop future business and referrals. Differentiate yourself by helping them

restore their credit standing.

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Added Value

• All national studies show large segments of emerging markets lack RE knowledge, are unfamiliar w/terms and are easily duped.

• Two choke points: loan appl. and closing. Be present to build trust, eliminate surprises, make a clear message that you are an authorized participant.

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eWorkforce Housing

Specialist

You’re part of something big!

1 you’re part of something big! workforce housing specialist

Documents