Transcript Document

Onfidence
with
C
B
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Workforce Housing
Specialist
You’re part of something big!
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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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Fannie Mae & and Freddie Mac?
Suppliers of funds to
conventional mortgage
lenders
Private companies
with public
missions
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Secondary Market
W
here lenders & investors buy &
sell existing mortgages
• 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!
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Benefits of Homeownership
• 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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Source: Neighborhood Reinvestment Corp.
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Survey Says: Home as an Investment
Stocks
Mutual funds
Savings or money
market account
IRA or 401(k) plan
P
eople see buying a home as
being a safe and potentially
lucrative investment
10%
25%
27%
38%
70%
Buying a home
Source: 2002 Fannie Mae National Housing Survey
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Sizing the OpportunityNew Americans
Share of Total Household Growth
(1995-2010)
20%
80%
All Others
Immigrants
Source: Fannie Mae Foundation, 1996
N
ew Americans
Immigrants will
account for
nearly 1/5 of
total household
growth
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Non-Traditional
$213
$200
$150
$ Billions
$150
$173
$160
$140
$125
$96
$100
rate of 26%
from 1994 to
2002.
$65
$50
Nationally,
nontraditional
lending has
grown at a
compound
$35
20
02
20
01
20
00
19
99
19
98
19
97
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96
19
95
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94
$0
Source: Inside Mortgage Finance, 2002
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Non-Traditional
Reaching underserved markets
Data from the full year 2001 shows that non-traditional lending is …
Non-Traditional
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Prime Conv.
Conforming
60%
42%
47%
29%
36%
20%
<=80% AMI
<=90% AMI
Minority
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• 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)
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!
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Consumer’s
knowledge
of the
home
buying
process is
still a
barrier.
Knowledge
All
Adults
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African
Americans
54
Hispanics
52
Hispanic
Immigrants
62
Lenders are required to
give the best possible rate
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51
56
64
Neighborhood mortgage
brokers give a better deal
than large banks
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45
53
63
You need a perfect credit
rating
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39
59
70
At least 5 years on the job
is required to qualify for a
mortgage
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52
58
62
Didn’t know mortgage
interest is tax deductible
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43
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20% Down Payment
Source: 2002 Fannie Mae National Housing Survey
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Comfort with Real Estate Terms
Percent (%)
N ot Comfortable
70
60
50
40
30
20
10
0
51%
Whites
77%
58%
Blacks
Source: 2002 Fannie Mae National Housing Survey
Hispanics
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Obstacles to Home Buying
Proportion of home buyers saying
each is a major obstacle
July 2002
May 1999
July 2000
13%
13%
May 2001
21%
15%
23%
25%
27%
25%
27%
24%
29%
32%
Job security
Finding a home that I like and can afford
Down payment / closing costs
Source: 2002 Fannie Mae National Housing Survey
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Past Credit Problems
Overcoming Barriers
Lack of Funds for Down
Payment & Closing
Low & Moderate Income
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uncertainties for
buyers and sellers
Gain satisfied customers
and more referrals
B
orrow
with
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Eliminates
C
and closings
Automated Underwriting
Fast recommendations
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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:
–Loan Term
–Credit Profile
–Debt to Income Ratio
–LTV (MI level)
–Property Type
–Liquid Reserves
–Number of Borrowers
–Purpose of Loan
–Employment
Other Benefits of DU include reduced documentation requirements, detailed Findings and Reporting,
underwriting consistency and flexibility, and the limited waiver of representations and warranties.
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Benefits of Automated Tools
• Fair and objective
• Fast recommendations —
• saves time and hassle
• Less paperwork –
• streamlined appraisals
• Flexible products –
Loans close faster
and you get your
commission
sooner!
• low down payments
• expanded ratios & credit scores
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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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• Fixed rate
• 5/1, 7/1 and 10/1
ARMs
Flexible Profile
• Loan limit of $333,700
• Owner occupied, singlefamily homes, condos,
and PUDs
• Zero or 3% down
payment
• Expanded ratios
means lower
qualifying income
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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
Before
DU Approves
Now with EA
DU Approves
RWC Delivered
Level I - Eligible
RWC Ineligible
for Delivery
To Fannie Mae
Level II - Eligible
Level III - Eligible23
Level IV - Ineligible for Delivery to Fannie Mae
Ideal financing for credit challenged
T
he right mortgage at the
right price
 Say
“yes” to more borrowers
 Offer
better pricing compared to a subprime execution
 Reach
a broader audience of
buyers/borrowers
loan products tailored to the
borrower
with
C
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Onfidence
 Provide
“Yes” Rate
is 95% vs. 85%
Expanded
Approval is a
product in
Desktop
Underwriter ® that
reaches further
into the credit
spectrum thus
enabling
approved lenders
to approve more
loans.
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Expanded Approval with TPR
• 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.
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Expanded Approval with TPR
Timely Payment Rewards
What is it?
What are the Requirements?

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:

1.00% rate reduction for EA-III/Eligible

.50% rate reduction for EA-II/Eligible


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
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How competitive is EA?
All-in PAR Price Comparison
9%
7%
6%
EA Lender
Level 1 Level 2 Level 3
6.865% 7.525% 7.925%
Subprime A 7.350% 7.950% 8.200%
Subprime B 8.425% 8.775% 8.775%
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)
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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 borrowers
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with competitive interest rates

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My Community Mortgage
• Suite of financing solutions for
low-and moderate-income
buyers
– Community 97
– Community 100 Plus
– Community Solutions
• For teachers, police, firefighters, &
health care workers
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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 30-year or less fixed-rate, 7/1 ARMs, 10/1 ARMs
(negotiated)
(negotiated). Available with EEM option.
Owner-occupied, single units
Owner-occupied, single units
100% LTV; 105% CLTV with Community
Seconds; “no cash-out” refis allowed
3% from flexible sources *
41% single qualifying ratio
Minimum 660 FICO (or less with documented
extenuating circumstances) or enhanced credit
evaluation for traditional or nontraditional credit
2 months reserves
100% LTV; 105% CLTV with Community
Seconds; “no cash-out” refis allowed
1% or $500 (whichever is less) from borrower’s
own funds; remainder from flexible sources *
41% single qualifying ratio
Minimum 620 FICO (or less with documented
extenuating circumstances) enhanced credit
evaluation for traditional or nontraditional credit
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*
Ratios as high as 45% with
1 month reserves or 50%
with 2 months reserves
Reserves may be gifted
* Incentives to Healthcare Professionals require their
employers provide an EAH Program
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Borrower Eligibility
Financing for Legal Aliens
•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
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www.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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•
•
•
•
•
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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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•
•
•
•
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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 brokers
http://www.missouri-finance.org/
• Real Estate Appraisers
http://pr.mo.gov/appraisers.asp
● Real Estate Brokers/Agents
http://pr.mo.gov/realestate.asp
●
FBI
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Join us for
WHS 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 47
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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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Workforce Housing Specialist
You’re part of
something big!
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