HUD NSP3 Accessing Credit-Permanent Mortgage Financing

Transcription

1 Kent Buhl: And now to introduce the panelist and the topic, here's Rob Grossinger, vice president of the National Community Foreclosure Response Initiative with Enterprise Community Partners. Welcome, Rob. Rob Grossinger: Thank you, Kent. And welcome, everyone for joining today to talk about access to credit, the myths and realities that many of you are facing out there in the community, especially the NSP1 grantees who have finished up a lot of their acquisition and rehab work and are now looking at trying to market those properties and wondering what happened to all the homebuyers. What is the current status of credit, what are processes that you can undertake to have better relationships with your lending partners is all wrapped up in this session today. I want to introduce our three panelists: Tom O'Neal from Bank of America, LaDonna Reeves from Chase Bank and Mike Dawson from Freddie Mac. Each will bring a different perspective to the discussion, but let me just say that all of them are battle tested in answering questions. All of them, especially Tom and LaDonna have been through the recent clinics that many of you may have attended around the country and there are no questions you can't ask. There is no issues they're not willing to address within the purview of their expertise. And please, remember that the goal of this is to really get down and drill down into what's going on for these two major lenders and a secondary market, Freddie Mac, with respect to the current state of the credit market for mortgage lending. I will say, the one area that none of them can address, and especially Mike, is the future of the GSEs. So you can ask the questions, I'll simply respond saying, "We have no idea." So let's just leave that off for another -- if we ever do understand the future of the GSEs Mike will be the first that wants to know and then we'll try and do something that can explain that to all of the NSP grantees that are part of our network. So with that said, let me get into setting the tone just a little bit and then we'll turn it over to our experts. And what I'm hoping for is the ball from Kent so I can actually forward the -- Kent Buhl: You've got the ball there. Rob Grossinger: I've got an ineffective ball. Kent Buhl: Okay. Let me try that, does that help? Rob Grossinger: Yes. It does. So again, we're going to examine some trends in the mortgage origination system. We'll get some myths that we keep hearing out there in the market and try and address those with realities and most importantly, for all of you on this webinar a long question and answer session to let you really vet the issues you're seeing in your market and see if LaDonna, Tom and Mike can be helpful in shedding some light on what you're seeing out there. So I have a couple slides I want to touch on for you, which are fairly -- none of these are going to rock your boat in the sense that you know all of this, but it's nice sometimes to just see it altogether. This is still a very good time to be a homebuyer. Mortgage rates still remain at very, very low rates.

2 There is a huge, as you can see in the next slide, surplus of properties out on the market, which is a double-edged sword for you as NSP developers, because it's a great time for homebuyers, but that means you're also competing as you're trying to sell houses with other, either distressed sales, such as short sales or foreclosure sales outside of your NSP work or just the normal home sale market. So again, this clearly indicates it's a great time for homebuyers to get in the market, but it does indicate it has that double edge sword. We are continuing to see home prices decline in different parts of the U.S. as some of you may have read recently. The projections for continued decline in certain markets range from 2 percent to 20 percent, depending on the market that again, is a double edge sword. For homebuyers, that means prices will continue to be low, if not lower, which allows more affordability, but for NSP sellers it means there's a hesitancy on the part of buyers, because they think if they wait longer housing prices may continue to go down. So with any trend in the housing market there's always two sides to that story. Obviously, rates for lending, affordability are at both lows and highs. So mortgage rates are at all time lows, the affordability index is at an all time high, which again, gives you some sense of what's going on in the market. I think this last slide that I'm going to talk about is absolutely enlightening about the current state of mortgage lending. In 2006, it would've been sort of the height of mortgage lending, 55 percent of the loans that were sold off into the secondary market were sold off to private label owners, private label investors. Those were what all of you know as the mortgage-backed securities and collateral debt obligations that were not held by either the GSEs or Ginnie Mae, but were being held by Wall Street in some form or another, whether it was Goldman Sachs, Bear Stearns or even any of the big financial institutions that held in their trading desks, private label mortgage-backed securities. So 55 percent of the secondary market was held by the private sector. Now, the private sector is 2 percent. And Freddie Mac and Fannie Mae are 70 percent of the secondary market; Ginnie Mae is 28 percent. And for those of you that are tracking HMDA data, FHA is one of the largest -- if not, the largest -- lender right now in terms of mortgage lending. So you've seen a complete shift in who is handling this volume. And I think for us, as those interested in selling homes and revitalizing communities and getting homebuyers to come into revitalizing communities it does give us an opportunity to talk to the secondary market which is interested in policy as well as profit. And I mean, policy in a broad, broad sense. It gives us an opportunity to have those discussions. And I think for all of us in the world of NSP and not just the NSP program, but neighborhood revitalization as a whole, it does present some opportunities. But that's a very dramatic shift in the market. So what do we hear out in the market? We hear nobody will lend in declining markets. We hear that FHA is the only option and that there's no private lending going on. We hear that the PMI companies are not active at all with first time homebuyers, that lenders, such as you'll hear from LaDonna and from Tom will not originate mortgages if you as an NSP grantee create a soft 2

3 second program with your funds. And finally, that everything is just too complicated when there's federal money involved. I think all of those myths can be debunked today to some extent. I think your questions will help us do that as well, but it's also embedded within LaDonna and Tom's presentation. So again, I urge you to be as vocal as you can, either with typing in your questions or calling in, because this webinar is only as effective as it is in terms of bringing you the information you need and answering your questions. So I encourage you all to be active in that regard. So with that said, I think it's time to turn over to Tom O'Neal, senior vice president with Affordable Housing Programs for Bank of America. And Tom? Tom O'Neal: Thanks, Rob. I'm going to go through a brief [inaudible] here, but let me just talk about it in broad terms and what I hope to provide you today is a discussion of some of the issues that we as a lender or any lender has where we're dealing with subsidy liens, subordinate liens that are by definition a community second program, Fannie Mae terminology, [inaudible], and where we've run into some issues. And a lot of this is really related to how your lien is structured, whether it fits the guidelines of the GSEs or HUD. We ran into some issues with communication with the lender. And if you're using your subsidy as a reduced purchase price where it's not hard money for down payment or closing costs, but rather you're subsidizing the purchase price of the property. And then simply, some of the nuances of lending where rehab is involved and that's where we've also run into some issues. So moving to my first slide, I'm going to talk about an overview of secondary financing. I'll try to keep it as specific as I can with neighborhood stabilization, but really, it crosses over into almost any form of soft second through a housing agency or nonprofit. If an NSP program is structured for lenders to originate a first mortgage with a concurrent close of the agency's second, we have specific responsibilities that we need to follow within the bank here. Of course, we're looking to ensure that our first mortgages are eligible for sale in the secondary market. So we need to follow closely things regarding FHA guidance. For consistency in terminology you'll hear me use the term "community second," but in reference to our [inaudible] from Freddie, at Freddie, they will look at them as "affordable seconds." Either way, we're referring to the soft seconds from the housing agencies or nonprofits. Nationwide, Bank of America has approved over 1,800 of these programs for use in conjunction with one of our first mortgages, 170 of these have been done in conjunction with NSP money. So we're very active with our review of the programs that are out there today. Now again, there are some issues and that's the purpose of this discussion, but absolutely, we want to be involved with you on your NSP funding and how you structure your programs. Any of these programs, however, just are [inaudible] secondary market guidelines, and that's something that I'll try to touch on as we go through this. 3

4 On the conventional side -- and just to give some basics -- the combined loan to buy is 105 percent or to a level that covers all of the eligible costs on an FHA loan. The subsidy provider generally places their own restrictions on borrow eligibility. The lender is not concerned with those restrictions, even though you're bound to certain eligibility requirements with the NSP program itself, but if there are other restrictions placed that's up to the agency and second loan provider. Common restrictions are income limits, purchase price, first-time buyer -- which isn't applicable here -- but in almost all cases there are restrictions. The community second programs or affordable seconds can be structured in many different ways from our perspective. They can have zero interest or a very low interest rate; they could have shared appreciation in lieu of interest. The payment can be deferred for the first several years or no payment at all for the entire term of the loan. The loan becomes due upon sale of the property or change in occupancy or they could be forgiven over time, either partially or fully. Agency guidelines on the conventional side, I won't go through all these, but some of the key requirements of Fannie, Freddie and HUD are outlined here when you create your second lien and the terms of the second lien. Recently, I was involved in a discussion with one NSP recipient about the structure of their program and the comment they made was that it's not their requirement or not their responsibility to ensure that they structure -- you know, the reason we were meeting was because Bank of America couldn't work with their program and it's simply because they didn't structure it in a way that a lender like us or most lenders could work with their programs. So I would strongly encourage that both you and/or your legal counsel that develops your lien documents become well aware of what the agency guidelines are for a soft second or subordinate loan. FHA guidelines are outlined here as well. It is a little bit more pointed. They require that the lien be in the name of the subsidy provider. So whoever the recipient is, the lien documents for the second lien have to be in that name. You cannot put the lien in the name of a nonprofit if you are working with a nonprofit that's administering the program unless that nonprofit is an instrumentality of government; so in other words, it's created or overseen by the housing agency. If the subordinate lien has resale restrictions that are imposed on the borrower -- and virtually all of the NSPs that I've come across do have lien restrictions -- those restrictions under FHA requirements must terminate the available foreclosure or deed in lieu, and that language has to be very specific. We've come across quite a few programs where that is not the case and that makes it ineligible for the first mortgage that's insured by FHA. And VA is the most lenient. They basically require that the lenders simply confirm that the veteran benefits in the program and although they don't have specific approval requirements if the program is provided through a government entity we just need to warrant that the benefits have the veteran benefits in the program. Just as an overview, whether it's Bank of America or another lender, we're going to want to review that subsidy for assurance against the guidelines that I mentioned previously under Fannie, Freddie or HUD. To do that, we would like a program description with the outline of the 4

5 eligibility, what the problems are, the income, purchase price limits in writing and maximum assistance, the financial terms of the subsidy and so forth, contact information for who we need to reach out to should we have questions or to coordinate a closing and then copies of the legal documents and if you need a trust in mortgage. Some NSP recipients in creating their program require the lender to execute a participation agreement with them. At Bank of America we're not opposed to that, though I have come across circumstances where some of the reps and warrants we're being asked to make are simply not workable for us. So I will also take care with that and make sure you're communicating with your lenders. Some of the common questions that come up and what are some of the causes for a community second on NSP is to be declined. Again, sometimes it just boils down to the structure of the program, whether it meets the agency guidelines. For example, there could be shared appreciation, but it might exceed what HUD or Fannie or Freddie would allow. As I mentioned, a participation agreement may have some provisions that the first mortgage lender can't, whether they want to or not, simply can't rep and warrant to [inaudible] funding of the concurrent loans that's incompatible with our systems. A good point, and then the last bullet point's on rehab. That's where we run into an awful lot of our problems with NSP. We've seen some programs structured where the NSP recipient wants to be very much involved in the disbursement of the funds for rehab once the property is acquired. So it'll be purchased in its current condition and then rehabbed, which forces the first mortgage lender into a rehab first mortgage, such as an FHA two- or three-pay. That can pose obstacles. Some lenders don't offer a two- or three-pay program. For those that do, we have seen where there's just a lack of understanding of what we could work with when it comes to the control of the escrow. Bank of America's position on this is that our understanding of HUD guidelines is that the escrow has to be administered by the first mortgage lender. So we caution you when it comes to oversight of the repair work that's needed to make sure that you're communicating with your first mortgage lender, and it's understood how that needs to be done. Can the agency fund the rehab and complete the disbursement fee? It depends on the extent of the rehab and when it will be completed. Obviously, if you're getting into health and safety issues, that's going to have to be completed prior to the close of the first mortgage, or again, the first mortgage lender must use the rehab products, such as two- or three-pay. And again, as I mentioned, we must administer these before we have disbursement. You can even put the funds into an account and allow the lender to manage the rehab. That will be very lender-specific. There are system complications that make that difficult for some lenders. Some lenders that fund, say, a two- or three-pay loan and only seek funds from the NSP recipients as a positive into their escrow as they service that rehab account, once again, if they're having questions about that disbursement process, if there's rehab, that will keep them postponing, it seems to me that they would put the lender [inaudible]. If the agency does not own the property, they can certainly manage the completion of non-health and safety issues, such as carpet, painting, landscape and so forth first, and then work can be 5

6 done after closing. So if it's really minor work not impacting health and safety and that you want to include some of this with the property and use some of the funds, that will work. Again, just into health and safety being a requirement being completed prior to close, it's likely the contractor will need to agree to be paid until close of escrow. It may be that you will need to record the second mortgage concurrently with the first closing. The amount of the second may include funds disbursed to contractors as well as down payment and closing costs. Some of the solutions that we've seen that seem to work best, and first of all, when you're heading into the situation where you have rehab, or you want to incorporate your subsidy to include rehab, allow the first mortgage lender to have a rehab power to build it into their loan. That's really the easiest way for the first mortgage lender to do so. Use the NSP money, but as opposed to using it for rehab, use it simply as a buy-down to the down payment requirement. So fund the larger down payments up front, disburse it for that, lower the first mortgage on the house and then let the lender set aside the funds that are required for rehab. Of course, you can always fund down payment and closing funds systems, and that's the cleanest way that we've participated so far with many of the NSP recipients. And that's it. I don't know, Rob, if you want to hold questions until the end. Rob Grossinger: Yeah. I think we will. Thanks very much, Tom. I would like to stress for everyone a couple things. We just eliminated four of the five myths on your sheet listening to Tom's presentation. Clearly, Bank of America -- and I know you'll hear from LaDonna in a minute -- but Chase, and for those of you that were at the clinics, you heard this also from Wells, they are lending. They are approving programs in NSP communities, which many of them are thought of as declining markets. They clearly are not FHA. So that means that FHA is not the only option available for permanent fixed-rate mortgages. Clearly, they are originating mortgages with public soft seconds, and it may be complicated, and it may be not, but it's being done. So it's not too complicated. I think I want to stress for everyone on the call that Chase, Wells, Bank of America, Fannie Mae and Freddie Mac all participated in the five clinics that HUD held, all at their own expense. All gave up a couple days of their time to come to those clinics for all of you, to help all of you better understand how to access mortgage lending, how to access them for help for mortgage lending. So if they're that committed to be able to spend their time with all of us, I really want to stress for all of you to call them as you begin to use soft second programs or any type of down payment program. Whether it's an existing program that you're already running using HOME or CDBG or some other pot of money or a new NSP program, the folks that you're hearing from, Tom and his boss, Dottie Sheffick [ph], at Bank of America, and LaDonna and her boss, Denise Smith [ph], at Chase, and the people that are participating from Wells-Fargo are really there to help. Call them. Work through these issues ahead of time so that you're not coming into something where all of a sudden, you realize that there's an out-of-compliance piece to your program, and nobody can lend, not because they don't want to, but because there's no secondary market for them to sell the mortgage to. 6

7 So their numbers are all on this webinar. Their numbers were all handed out at the clinic. They really do want to hear from you, and it's much better for them, and it's much better for you to address these issues up front or even during your process than at closing or near closing, when you realize you have a problem. So thanks again, Tom. I'd like to turn it back over to LaDonna Reeves with multicultural, affordable lending at Chase Bank. And LaDonna has participated in the clinics, and now we get to have her here on this webinar. LaDonna Reeves: Thanks, Rob. Good afternoon, everyone, and I really appreciate you guys taking the time to log in. I really think this is very critical, informative information that we're giving today. So before I even start my part of the presentation, the first thing I want to say is ditto to everything my colleague Tom from Bank of America just spent his time talking about. It's very critical that everybody understands that a lot of us, specifically your Bank of America, Chase, Wells, we're all in the same boat when it's trying to make sure that as we structure financing for our borrowers and our customers and your constituents, that these things are prevented and structured so that they can be layered onto loans. I think you're going to find, guys, that when it comes to things like this, we are all playing very well in the sandbox together. So again, ditto to everything Tom said around how we're looking for that language, what are certain things that become challenges and stumbling blocks. So please do, as Rob reiterated, reach out to all of us if you're just developing an NSP [inaudible] or anything like that. We are more than willing to get our experts from any of the lenders that you want to work with to sit down and actually look at how you're structuring, look at the language, let you know what are challenges for us and what are things that we can do. So that being said, once we do get past those challenges around how the seconds are structured, what is the language in them, can we layer them onto various products, we've still got to address other challenges in the market. And so I just wanted to talk to you briefly about what some of those things were, because they're challenges for you as you work with your constituents, and they're also challenges for us as we try to work with your borrowers. So first of all, there's generally three challenges that we're going to face, credit, because we know we've got FHA, but we know there's some tightening in the market. A lot of people have got to come up with more money down, larger down payments. More have got to come from their own funds. And then also, property conditions. So as we look at those things, what is the first challenge? Credit score challenges. Most banks, Chase included, often put overlays on their credit score threshold. So for Chase, for instance, it's 620. So how do we address working with a nonprofit and our other partners around getting those credit scores up to levels that are acceptable from a mortgage financing standpoint? One, we've worked very closely with all of you guys who are consumer credit counseling agencies, who provide budget and credit counseling to their constituents so that they can understand what those thresholds are and really help their constituents address how they need to get to a level that is financeable or ready to be financeable. So I know you guys do budget training and things like that. I know that my partner Bank of America, we, as well as Wells, all support Neighbor Works Training Institute, where you can send your counselors so that they understand how to do things to help support this issue, classes 7

8 such as maximizing credit. So we do things like that to kind of support you guys to help you work with people to improve credit scores. The next biggest challenge we face is down payment and asset challenges. Now that we know with the current markets and with some other things, MI companies don't go as high as they used to from a loan and value standpoint in terms of issuing MI certs. And when they do, even with community seconds and secondary financing from NSPs and things like that and other grants, we often do need higher credit scores. So again, we talk about how we address the higher credit score issue. But the other things we do is we look for funding, such as DEH programs or employer workforce housing initiatives. We work with our bond and HFAs across the country that offer down payment assistance programs. We work with nonprofits who are managing these second community mortgage products that help us help borrowers bridge that gap. So again, this is great, because, because you guys are working with NSP funds, the counseling is required. It's going to be really critical that we work together as partners to make sure that A, people are aware of the resources that are out there and available for them. So we are working with the counseling agencies, and that we work internally to make sure that our staff is trained and able and ready so that when a borrower walks in, and they want to work with a Chase or a Bank of America or a Wells, that originator has the ability to say to that borrower, "You know what? It looks like you qualify for X." We can make that referral to our nonprofit partner. Property condition challenges. One, we know not all banks offer rehabilitation product, but when we do, we know that that can be a stressful transaction for a lot of first-time homebuyers. So where you guys really have a niche is that most NSP programs are being used to actually rehab those properties and get them ready for resale. So then that kind of takes that stress off the borrower and gives the borrower a property that we know has been really done well. A consumer can be able to walk into that and be assured that it's been done in a quality way so that when that person gets in their home, there should be no surprises, no financial stress around something breaking down or going wrong. So we do look for opportunities to work with nonprofits who do quality rehabilitation before they sell those homes, who help enhance all their constituents during that process. And then finally, we try, all of the banks, to offer affordable products. Obviously, FHA and VA are great. Why? One, they already require a lower down payment. Two, they give us some flexibility around the types of down payment that are available, from gifts and other assets, specifically community seconds and other types of grant programs. Chase has Dream Maker, but Wells and Bank of America, some of our other partners also have their own in-house products that they make available for first-time homebuyers or low or moderate-income buyers. We work with Fannie and Freddie. We do the My Community and Home Possible. And then we also work with our state bond programs, which again, offer a plethora of these other products overlaid with the down payment assistance that they offer through their bond programs with a very affordable rate. 8

9 So we look to try to get as many programs as we can to make available to make financing available to those specific markets. And then, Tom went through the things, these are the things that we would need to actually get a down payment assistance program approved. Tom went through it. So I'm not going to read it to you guys, but if you do, again, if you're not sure what you need, just please reach out to your partner at Bank of America, at Chase, at Wells and just talk to us about what those documents are that we require, who we need to give them to so that those grants can be approved for use and that financial institution. And then, again, detail program challenges. Tom talked about that. He actually went into even more detail, but again, we do. We look for language that usually does something around inclusionary loaning or resale restrictions, and those are the things that tend to be the issues that we try to work with and resolve with you. So if you're on the call, you can always reach out to me. My information, cell phone and are out there in the deck that Rob and those guys are providing. I'm also, as well, listed at my peers who exist across the country. So if you want to reach out to one of them, because they're serving your market directly, do feel free to reach out to them, as well. Rob Grossinger: Thanks, LaDonna. Thank you very much. Before we turn it over to Mike, I wanted to just stress one thing that LaDonna said, and for all of you, I've heard from a number of NSP grantees that when they finished some of their homes and went their homebuyer list that was given to them by their homebuyer counseling partners, and there might be 50 people on the waiting list for them to talk to, one of them qualified, or two of them qualified. One of the things that the financial institutions on the call today and others are always willing to do, and that's part of what LaDonna's shop and Tom's shop do, is to create partnerships with home buying counseling groups out there so that they are better equipped, those counseling organizations, to adjust to the new credit environment so that they understand better how to prequalify people in a way that's consistent with the current credit market. I mean, there's no question. I think one of the initial questions that was asked quite a while ago was, "Well, has [inaudible] came out? So what is the new environment? How do the home buying counselors that you so desperately need to work with supervise you with homebuyers, how are they in synch with the lenders?" Lenders will help you do that. They reach out all the time to homebuyer counseling groups. They provide straight-up training to them. In many cases, they're supported with grant funds by the lenders. So please, think about if you're finding a very large non-qualification rate from the homebuyer counseling groups that you're working with, encourage them, if you lead them by the hand, to partner up with some of those large financial institutions who can do the type of training to get them to where their prequalification process is consistent with today's credit environment. So I'd like to now turn it over to Mike Dawson, who is from Freddie Mac. He's the vice president of single-family affordable lending and deal and contract management. He wins the prize for having the longest title of anyone on the webinar. Mike? 9

10 Mike Dawson: Thanks, Rob. I'll be looking forward to collecting that prize pretty soon. But welcome, everyone, and thanks for the opportunity this afternoon or this morning, depending where you are, to give you an overview of what he have going on at Freddie Mac. And as you all recall, that Freddie Mac does not lend directly. We work with Chase and B of A and others to establish what we hope to be consistent programs and provide liquidity and stability in the mortgage markets. And so again, we provide a number of resources on our website and through the various colleagues that we have across affordable lending and other areas in the company to make sure, again, we provide the information and tools necessary to allow us to provide one of our mandated missions here at Freddie Mac. So as you can see, just a quick overview of some of our activities in the markets over the last couple of years, so since 2009, we have funded over $850 billion of mortgage loans in the nation, serving about 4 million borrowers. And roughly 45 percent of those purchases over the last couple of years have been to low- and moderate-income buyers. So again, our programs, while broad and in a lot of cases specific to in affordable lending community have been and have touched kind of all segments of the United States housing market. And as we saw kind of in the myth number one that Rob has spoken to, do we lend in declining markets? We have been lending in all markets. And by the numbers you see here, I think that's proof positive that has been the case. Well, certainly, the credit guidelines have changed over time, and appropriately so. We are still very active in this space. And what has been kind of dominant in the market over this time, too, is that the recent [inaudible] activity has allowed about 3 million families to refinance their existing mortgages, saving roughly $6 billion in interest payments. Included in that number, too, whether it be both purchase or refinance or primarily in the purchase markets, you see they finance about 270,000, and probably shy of that, first-time homebuyers. And we'll talk, too, about some of the products in more detail here in a minute, but we do provide avenues and opportunities in that space. And in 2010 alone, we funded approximately 390,000 low-income borrower mortgages. And we've defined those kind of at or below the 80 percent of the median area income. And again, this is a nationwide type of figure. The one thing, we also support, and again, this is an activity jointly with Fannie Mae, we are supporting the U.S. Treasury's Housing Finance Initiative. This initiative was created back at the end of 2009, and U.S. Treasury set aside roughly $11.7 billion for single-family borrowers through the housing finance agencies, again, both state and local, to allow them to originate mortgages and for Freddie Mac and Fannie Mae to purchase those mortgages with the primary goal of unlocking and stabilizing the housing finance agency origination processes. As you recall, back in 2007, 2008, that market essentially locked up. The primary activity of housing finance agencies in providing funding to borrowers was through the bond markets. And the mechanisms that they were using at that time, they ran into a bit of a liquidity issue, and by providing not only the cash to originate new mortgages, we provided liquidity and credit support to existing bonds on the market. So again, both Freddie and Fannie 10

11 jointly administer this program. Approximately $3.2 billion of those moneys have been used through 2010, so that about $8 billion remains to be allocated, actually to be used in that origination process. And the way the rate-setting process has been worked out with the U.S. Treasury, the housing finance agencies are going to have somewhat of a competitive We are in the process of providing an update to this program. We should have something available mid-march to late March here that'll reaffirm, basically, and show where we've done with the program to date and what needs to be done to work through the remaining allocations, as it were, through the end of the year. So the point being here is that there is a fairly ample supply of cash that's already been set aside for the housing finance agencies and available for first-time homebuyers and available for, obviously, permanent financing for the communities out there. So moving to kind of the Freddie Mac affordable offerings, and at the high level, the 30-year fixed-rate mortgage, as many of you know, is the hallmark and cornerstone of the U.S. market. And over the years, the trading of 30-year fixed-rate mortgages in the form of a securitized product, in this case, the Freddie Mac Gold PC, is probably if not the second most liquid securities in the form on NDS in the market. And our approach of broad-based, consistent products in the market allow for funding better interest rates in this product, because there is an exit through the securitization markets that's traded globally. And this is a key theme I want to keep putting out there is that we look to consistency in our origination or actually purchase practices to ensure that the liquidity and the pricing characteristics of the mortgages themselves that go into the securities remain, again, as the most - - well, I'm searching for a word here. As providing the most liquid type of execution available. And so we guard the 30-year mortgage, guard the securitization markets very closely to ensure there's always the best execution possible there. The specific programs around affordable offerings, we have the Home Possible product, which I'll delve into here shortly, along with affordable seconds and down payment assistance programs and guidance around those that would fit into some of our purchase programs. And again, all of these materials with the marketing material-specific product information is available on freddiemac.com in the single-family tab on the homepage there. As I mentioned, on the next slide here, the Home Possible offering, minimum-responsible, low-down payment mortgage option for first-time homebuyers and low- and moderate-income buyers. It tends to fit the borrower profile, again, of the first-time home borrower, families in underserved areas, new immigrants in very low- and low- to moderate-income borrowers. Now, recognizing, of course, that I guess what you would say, FHA is the best execution at this time, given some of the down payment features that they have relative to some of our offerings, but again, our desire here is just to make sure everybody is aware of other permanent financing options and the programs and availability of those programs and the literature around those programs that we make available. The key features, I think many of you have seen this before. Again, there's fixed-rate products. There is arm-based based products, those 51 and 71-type products within there. There are 11

12 manufactured homes eligibility within there, of course, but with certain limitations within there, and there's maximum TLCZ and LTZ requirements in there. So it would always be the benefits to the borrower is that, particularly with a fixed-rate product, you know what the monthly payment is. That is not going to change in a fixed-rate mortgage product that's offered within here. [inaudible] closing costs and funding options within there, and there, of course, are some limitations, one of those being the no-cash-out refinancing. And again, on the Home Possible, we do have a lot more detail on the website that provides other benefits and potential restrictions within there. So I would encourage you to take a look at those, also. On our affordable second program, while we won't buy the second, we do provide guidance on what we would allow in purchasing the underlying mortgage share. And you know, again, the borrower profile would interest those who would use the program like this. Who would need them? The borrower who would need some type of flexibility on the secondary financing, would then, potentially a low- to moderate-income borrower. It is available through our automated underwriting system. There is allowance for multiple affordable seconds, but of course, with some limitations or limitations around proto-ltz and LTZ characteristics within there. And again, it sets the framework that will allow some flexibility on secondary or second-sale financing to provide down payment assistance and other assistance within that category. The last item here is that the combination of down payment and closing cost assistance, we do provide sources of information on our website that gives you some idea of other options out there that would be allowable in some of our first mortgage purchase programs. And we do have a wealth of resources out there. They're not only for Freddie Mac resources but point you in the direction of some other thoughts around closing costs and down payment assistance. So the other category -- I shouldn't say "category." The other thing that Freddie Mac has been involved in and providing information on and has been active in many communities is the purchase market. Obviously, the markets still remain to be very fragile here, and what we want to do, again, ensure that there is broad-based knowledge and broad-based opportunity for firsttime homebuyers and other purchasers in the market, primarily in the form of information. And as I mentioned earlier, primarily in the form of linking opportunities that Freddie Mac is involved in, such as the HFA initiative, to ensure those that are eligible borrowers can provide the financing opportunities out there. And again, while Freddie Mac does provide financing in those cases, we are involved in other activities that support other types of permanent financing. So we continue to be active in that space. And the last slide here on purchase market financing, it just gives you a look at some of the available material out on our website. But again, thank you for your time today, and I look forward to any questions or thoughts you may have. And again, I am Mike Dawson, and I think my contact information is available in these slides back here. But thank you very much. Rob Grossinger: Thank you, Mike, and thanks to all of our presenters. I'd like to just reemphasize one thing, Mike, that for those of you that don't have very close relationships with your state housing finance authorities or have not worked with them on single-family financing, they are a source, again, for financing, especially in mortgage lending in this regard. And as 12

13 Mike said, they were in effect shut down when the bond market collapsed for a couple years, but they now have a source of financing from the GSEs. They have stepped up and started to take more activity under their wing in this area, and don't just think of them as multi-family rental housing financers or low-income housing tax credit allocators. They are a source for you to talk about. Especially where you're seeing issues of the lack of liquidity for certain neighborhoods or certain activities, go have some conversations with them. They're a great resource to talk about this issue. And we're going to go into the question-and-answer session. What I'd like to do is kick it off with one question and then turn it to over to Kent to moderate everybody else's questions. But the question I have, and for lack of a more sophisticated way of saying it, appraisals are driving everybody nuts. So, LaDonna, Tom, Mike, what is going on? From your standpoint, what do you see as issues with respect to appraisals? And let's start with LaDonna, just to put it in order. But I'd like to hear from each one of you. LaDonna Reeves: Well, if I'm going to put the appraisal issue, I think, into context of what we're talking about today, I think it's just around making sure that the appraisers that we work with understand layered financing themselves. Chase has done some real outreach and training through some of our partners in terms of their appraisers that we work with just around making sure they themselves even understand how -- because these contracts can get very detailed, very convoluted. So when they go in, and they come up to these affordable developments and things, are they're seeing net purchase prices at [inaudible], and they're seeing the market level at that, and trying to get them to understand, "Okay. You can't go with the net purchase price," if they actually are using this grant, and it's going to be recorded as a lien. So now it's blowing the CLTV out of the water. So also, when appraisers are coming out, guys, and they are coming into developments, they're coming in for their appointment to do the inspection on the property, make sure when -- you know, we're giving them a copy of the sales contract. As lenders, loan officers cannot talk to appraisers. We are now regulated. We can't have those conversations. We can't talk to them. You can't. When they're coming out, make sure you're clear, "Here is our development." This is how it works. This is our NSP grant that we're using. This has to be recorded as a lien. This purchase price is really us, and then the net, they're using this as down payment. You've got to have that comfortable conversation, and that's why I said it really starts up-front, working with the bank around how this is really going to look for your borrower when they come in and apply for a loan based on how this grant is structured, so that you actually have the knowledge and savvy when that appraiser comes and inspects that property to say, "Yeah. No. This is our grant. This is how it works. This is a recordable lien. You know, so we'll lead the purchase prices up, and that's at the market level. And this is going to get up here." You need to be able to have that conversation very confidently. So hopefully, I kind of answered your question, Rob. 13

14 Rob Grossinger: You started. Let's see what Tom has to say. Tom O'Neal: Well, first of all, I agree with LaDonna, and the only thing I would add is one of the things that -- probably a couple areas that have been the most problematic from an appraisal standpoint. With the appraisers wrapping arms around subsidized sale prices and resale restrictions, there's growling out there now, at least from the conventional five, that states that appraisers are to comment and appraise one way when the resale restrictions terminate, and another way when the resale restriction survivie foreclure. That has been a big problem for appraisers who often aren't aware that the restriction even exists. Our purchase prices through NSP is that the appraisers are challenged to find something comparable in the Marvel. And some of the subsidies have been huge. Like I said with the guy we saw, he paid a sales price of $90,000 on a property that had been in the market of $200,000- dollar homes, and the appraiser really struggled with coming up with comps to fit. So it's really been an education in the office for appraisers, as well, and how they need to look at these properties. I would always ask the appraiser to give me both a subsidized and nonsubsidized value of the property so we could work with that, but there's just literally a degree of confusion as to how they assess those properties. Rob Grossinger: Mike, anything to add? Mike Dawson: No. I think LaDonna and Thomas stated it well. I mean, by charter, Freddie Mac cannot purchase any loan that has greater than 80 percent loan-to-value without some form of credit enhancement, whether it be structured or mortgage insurance. So appraisers are obviously near and dear to all of our hearts here. But we do recognize the challenges, particularly in rural markets around appraisals. So as we work closely with Tom and LaDonna and others to ensure we've got the right practices around policies and procedures around it to take into account various markets and various challenges within there. We hope to work with them and others to kind of fit those challenges into our purchase programs. Rob Grossinger: So would it be safe to say, Tom and LaDonna, that if an NSP grantee were to contact you as they were getting their program underway, you could help them with the dialogue they would need to have with the appraiser to get the appraiser as educated as possible before the appraiser goes out and looks at the property? Is that something that you help your partners with? Tom O'Neal: Yes. And we also try to instruct all of our originators to get very much involved in that up front so that the required information is given to the appraiser right when the order is placed. So there's no delays, and their requests to re-assess the property once additional information is known. LaDonna Reeves: Correct. Correct to what Tom just said, Rob. Rob Grossinger: Great, great, great. Kent, can I turn this back to you to moderate Q&A? 14

15 Kent Buhl: Surely. And well, we've got a number of questions lined up. So Brian Watkins [ph] has been standing by very patiently. He's got a couple questions, one about combined loan value and another about mortgage insurance. Where are you calling from, Brian? Q: Thank you guys so much. I'm calling from Detroit, Michigan City of Detroit Planning and Development Department, and I've heard a lot of valuable information in seeing each way [inaudible] involved in NSP 1, 2 and 3, or as it stands free in the work. But the biggest question I'd like to ask you is I just got two or three questions, but the biggest one is the underpaid MI. Number one, is it a thing of the past? And are there new programs for an underpaid MI that code this with NSP-funded notes? And to piggyback on that, I guess the LTV thing is things which are appropriate with respect to the coupling of these funds. As with FHA, the 105 percent, is that 105, you said, beyond the FHA max, or what would that practically represent? From my [inaudible] view, that would probably two separate questions, if I can frame them in that way. Tom O'Neal: This is Tom. The question again on the 105 percent, could you repeat that? Q: Yeah. With respect to the 105 percent LTV, can the [inaudible] CLTV go beyond the FHA max, in this case the maximum the FHA financed amount in the state of Michigan? Tom O'Neal: You know, the 105 percent that I referenced in my presentation was the ceiling on a conventional loan. FHA words their requirement a little differently. Basically, some photo of your liens cannot exceed the acquisition cost of the property. But whether it's rehab work through a government agency that is part of the liens, the amount of cost -- the total amount of those liens or total amount of acquisition costs can exceed the appraised value. And there is no cap. We've done a fair amount of work with different housing agencies where technically, we had a CLTV of over 150, 160 percent, and it really was a situation where the amount of rehab work wasn't realized in the value of the property, at least initially. So FHA is a little different. There can be no cash back to the borrower, but so long as rehab is involved, some of the liens can exceed 100 percent of the acquisition cost and can definitely exceed the value of the property. Q: Thank you. Rob Grossinger: Could you repeat the first part of your question, because this is Rob, and I'm not sure I exactly understood what you were asking about the first part. I thought you said PMI, but I wasn't sure. Q: Yeah. The question about lender-paid PMI or MIP, which was appropriate some years ago, 2005, 2006 on conventional notes. If the lender pays mortgage insurance is a thing of the past, and if it's not, are there any lender-paid MI programs that coexist with NSP-funded notes? Tom O'Neal: Yeah. From Bank of America's perspective, I'm not real close to that, but I believe we have discontinued our lender-paid MI program. LaDonna Reeves: And currently at Chase, we have no lender-paid MI options on those products that are eligible, where we can structure the community second on them, which are those affordable products. We don't have lender-paid MI options on those currently. 15