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Transcript of 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
Source: 2002 Fannie Mae National Housing Survey
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%
Source: 2002 Fannie Mae National Housing Survey
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
Source: 2002 Fannie Mae National Housing Survey
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
riting
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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!