Opportunities for HFA and GSE Collaboration. Moderator: Maria Day-Marshall Panelists: Erin Quinn, Shaun Smith, Mark Spates, and Tabaré Borbón

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1 Opportunities for HFA and GSE Collaboration Moderator: Maria Day-Marshall Panelists: Erin Quinn, Shaun Smith, Mark Spates, and Tabaré Borbón

2 Opportunities for HFA and GSE Collaboration NALHFA Annual Conference Dallas, TX April 15, Fannie Mae. Trademarks of Fannie Mae 2

3 Goal: Make Mortgages More Accessible, Affordable and Sustainable Mortgage Products Technology Other Tools and Resources

4 HomeReady Overview Designed for creditworthy, low- to moderate-income borrowers, with expanded eligibility for financing homes in designated low-income, minority, and disaster-impacted communities. HomeReady lets you lend with confidence while expanding access to credit and supporting sustainable homeownership. Simplicity and certainty for lenders Improved pricing and execution Product features designed to align with today s buyer demographics and support sustainable homeownership Fannie Mae s Economic and Strategic Research group reports a demographic sea change in the housing market, characterized by the rise of the Millennials, increased diversity, and a growing elderly population; and new household growth is being driven by traditionally underserved segments. 4

5 Product Features Financing up to 97% LTV (DU is required for LTV ratios >95%). Borrower is not required to be a first-time buyer; purchase of oneunit principal residence (limited cash-out refi up to 95%). Lower MI requirement than standard (25% for LTV ratios >90% to 97%). Allows for nontraditional credit. Gifts, grants, Community Seconds, and cash-on-hand permitted as a source of funds for down payment and closing costs. Supports manufactured housing up to 95% and HomeStyle Renovation (approved lenders) to 95%. 5

6 Product Features (continued) DU automatically identifies potentially eligible loans. Underwriting flexibilities include: o Offers an innovative new feature that supports extendedincome households by considering income from non-borrower household members as a compensating factor in DU to allow for a DTI >45%, up to 50%. o Allows non-occupant borrowers, such as a parent. o Permits rental income from an accessory dwelling unit. o Allows boarder income (updated guidelines provide documentation flexibility). 6

7 Extended-Income Households Extended-household living arrangements are more common among underserved populations, including low- to moderate-income, minority, and immigrant households. Percentage of EIHs by Race/Ethnicity Asian African American Hispanic 17% 20% 25% These households often have lower incomes overall, compared with a broader population, and that may impact their access to credit but many also are extended-income households or EIHs. HomeReady recognizes the growth of extended-family living arrangements by allowing the existence of nonborrower household income to be considered. NAR* reports 13% of home purchases in 2014 were by a multigenerational household. * National Association of Realtors 2015 Home Buyer and Seller Generational Trends Report 7

8 EIH Requirements and Underwriting Considered as a compensating factor (in DU only) to allow a debt-to-income (DTI) ratio great than 45%, up to 50%. Not included as qualifying income, and does not impact the DTI ratio used in the risk assessment or displayed on the DU Underwriting Findings report. The non-borrower household member IS NOT REQUIRED TO BE A FAMILY MEMBER. The non-borrower s income must be at least 30% of the total monthly qualifying income being used by the borrower the 30% could be reached by an aggregate of more than one person. The non-borrower income must be documented in accordance with standard Selling Guide policy based on the income type. There must be a signed statement of the intent for the non-borrower to reside with the borrower for a minimum of 12 months. (Fannie Mae provides optional Form 1019 for this purpose.) Must be reflected in DU as an Other Income type of Non-Borrower Household Income. 8

9 Extended-Income Household Sample Scenario 9

10 Boarder Income and Rental Income Boarder Income Rental Income 1-Unit Boarder income (relatives or nonrelatives): Up to 30% of qualifying income Documentation required: Shared residency for the most recent 12-month period. Boarder income for at least 9 of the most recent 12 months (averaged over 12 months). Rental income from a 1-unit property with an accessory unit may be used as qualifying income. 2- to 4-Unit Not eligible Rental income from 2- to 4-unit property may be used as qualifying income. 10

11 Boarder Income Sample Scenario 11

12 Rental Income Sample Scenario 12

13 Non-Occupant Borrowers The consideration of a non-occupant borrower s income, assets, credit and liabilties permitted for qualifying: Non-Occupant Borrowers DU: maximum 95% LTV Manual: 90% LTV with max 43% DTI for occupying borrower Income considered part of qualifying income and subject to HomeReady income limits Ownership of Other Property Occupant borrower(s) may not have an ownership interest in any other residential property at the time of closing. No limitation on ownership of other property for non-occupant borrowers. 13

14 Non-Occupant Borrower Sample Scenario 14

15 Homeownership Education and Post-Purchase Support Comprehensive homeownership education. Requires online course provided by Framework; and offers additional post-purchase support through the life of the loan to help ensure sustainable homeownership. Borrowers will invest 4 6 hours (average) of their time and a modest fee of $75 (paid to Framework) to learn the fundamentals of buying and owning a home, take an online test, and receive a certificate of completion. Although one-on-one counseling is optional for HomeReady, Framework will offer borrowers a referral to a HUD-approved counseling agency for additional assistance. Borrowers also have the option to consult a counselor of their choice. To further promote sustainability, borrowers will have access to postpurchase homeownership support for the life of the loan through Framework's homeownership advisor service. 15

16 HomeReady Resources Key Selling Guide Announcements Fact sheet Product matrix FAQs Fast Facts for Loan Officers Income flexibility fact sheets (extended-income household income, rental and boarder income, and non-occupant borrowers) Income eligibility lookup tool and state-by-state eligibility snapshot maps Customizable marketing materials Product comparison Homeownership education and housing counseling FAQs Training opportunities: Live webinars and an elearning course Find these resources and more on the HomeReady page: 16

17 Technology to Effectively Manage Risk Desktop Underwriter (DU) the leading automated underwriting platform in the industry Early Check provides access to Fannie Mae delivery edits to assist lenders in identifying and correcting potential eligibility and/or data issues early in their processes and prior to loan delivery Collateral Underwriter (CU ) Proprietary appraisal review application developed by Fannie Mae to support proactive management of appraisal quality. o Gives lenders access to the same appraisal review tool that Fannie Mae uses, at no additional cost.

18 Other Tools & Resources Spanish Language Resources for Lenders Use these resources to better support your Spanish speaking customers. New online resource for lenders and HFAs to help support their Hispanic borrowers Spanish and English versions of many loan origination documents side-by-side o Loan application o Loan estimate o Verification forms o Closing disclosure o Security instruments o Links to outreach materials in Spanish Customizable sample notice to borrowers to help consumers understand that the mortgage transaction will be conducted in English

19 Other Tools & Resources Home by Fannie Mae New Fannie Mae consumer app created to support access to homeownership Informs prospective homebuyers on the home buying process App includes dashboards, checklists, financial calculators, videos and more Free interactive app homeapp

20 Thank you Mark Spates Telephone: (202) Fannie Mae. Trademarks of Fannie Mae 20

21 2016 NALHFA Annual Conference Opportunities for HFA and GSE Collaboration Erin Quinn, Director, HFA Engagement Affordable Lending and Access to Credit Single Family Division April 15, 2016

22 A Better Freddie Mac and a better housing finance system For families...innovating to improve the liquidity, stability and affordability of mortgage markets For customers...competing to earn their business For taxpayers...reducing their exposure to mortgage risks Freddie Mac 22

23 Building Critical Partnerships with HFAs Reinventing relationships with HFAs nationwide Supporting HFAs critical mission» Providing multiple Freddie Mac resources through a team-based approach» Exploring new test-and-learn initiatives and value-added products based on HFA feedback» Leveraging partnerships with third parties Making it easier for HFAs to work with us Delivering mortgage products that help HFAs reach more potential homeowners» Providing low down payment options» Supporting down payment assistance programs» Offering preferential pricing Freddie Mac 23

24 Freddie Mac HFA Advantage Mortgage: Enhanced 97% LTV / 105% TLTV Benefits include: HFA-established income limits No minimum borrower contribution and no reserve requirement HFA-determined homebuyer education Lower mortgage insurance costs» Charter lever coverage = lower monthly MI payments» No upfront MI premium Credit enhancement options including immediate rep and warranty relief No delivery fees May be submitted through Loan Prospector SM, Desktop Underwriter, or manually underwritten Cash and guarantor executions Freddie Mac 24

25 HFA Advantage or FHA? A Look at the Numbers FHA 96.5% LTV 3.75% rate* Upfront and monthly MI 97% LTV 4.125% rate* Borrower paid monthly MI HFA Advantage 97% LTV 4.125% rate* HFA paid single MI premium Down payment $6,125 $5,250 $5,250 Down payment savings $875 $875 Monthly payment $1,315 $1,308 $1,223 Upfront MI** 1.75% 0.00% 0.00% Annual MI 0.85% 0.60% 0.00% MI term Life of loan Cancels at 78% LTV Cancels at 78% LTV Monthly savings $7 $92 Annual savings $84 $1,104 Savings over 5 years $420 $5,520 * Note rates drawn from an HFA website January 2016 ** FHA includes an upfront MIP (1.75%) and a renewal premium (0.85%). PMI premiums vary based on select transaction features. Higher FICO scores further reduce PMI premiums. Scenarios are intended for comparison purposes only and should not be relied on for actual rate quotes, loan estimates, or other borrower disclosures. Comparisons are made at the highest LTV ratios allowed for the product. Consult the Freddie Mac Single-Family Seller/Servicer Guide for detailed requirements that apply to HFA Advantage and other 30-year fixed rate mortgage products. Freddie Mac 25

26 What is the Duty to Serve? The Housing and Economic Recovery Act of 2008 established for Fannie Mae and Freddie Mac a duty to serve very low-, low-, and moderate-income families in three specified underserved markets: Each year, FHFA is required to evaluate and rate each Enterprise s performance in each underserved market and report the results to Congress. Freddie Mac 26

27 Underserved Markets Plans The Enterprises must develop plans addressing how each Enterprise will implement core activities» Manufactured housing Financing for units titled as real property Financing for manufactured housing communities» Affordable housing preservation Energy efficiency single family Shared equity homeownership» Rural housing Activities that serve rural areas generally Activities that serve high-needs rural regions or populations Plans must cover a 3-year period Draft plans subject to a 6-month review process Draft plans will be posted on FHFA s website; 45-day public input period Freddie Mac 27

28 How Will FHFA Measure Performance? Outreach the extent of outreach to qualified loan sellers and other market participants Loan Products development of loan products, more flexible underwriting guidelines and other innovative approaches to provide financing in each underserved market Loan Purchases volume of loan purchases relative to market opportunities available to the Enterprise Investments amount of investment in projects that assist in meeting the needs of the market Freddie Mac 28

29 Expanding Homeownership Opportunities Together Critical feedback» Emerging markets with non-traditional credit profiles» Continued need for down payment resources and flexibility» Persistent need in underserved markets» Neighborhood stabilization challenges» Desire for execution options Freddie Mac is exploring HFA feedback-driven opportunities» Meaningful changes to broad offerings» Collaborative test-and-learn initiatives» Tailored solutions Enhanced communication, collaboration, and consultation Freddie Mac 29

30 Opportunities for HFA and GSE Collaboration NALHFA Annual Meeting Shaun K. Smith, Senior Director, Targeted Affordable Housing April 15, 2016

31 What is the Duty to Serve? The Housing and Economic Recovery Act of 2008 established for Fannie Mae and Freddie Mac a duty to serve very low-, low-, and moderate-income families in three specified underserved markets: Each year, FHFA is required to evaluate and rate each Enterprise s performance in each underserved market and report the results to Congress. Freddie Mac 31

32 TAH Annual Volume Product Overview 2015: $2,530,030,294 Firm: Fixed Rate CME Floating Rate CME Fixed Rate PE Bridge Bonds TEL $439,041,750 $447,370,347 $149,264,000 $25,075,000 $906,881,000 $263,707,197 Freddie Mac 32

33 TAH Annual Volume Product Overview 2016 YTD (4/5/16): $778,199,000 Fixed Rate CME Floating Rate CME Fixed Rate PE Bridge Bonds TEL Forward RL TELs $90,590,000 $114,464,000 $38,549,000 $0 $102,790,000 $223,188,000 $208,618,000 Freddie Mac 33

34 Direct Purchase Tax-Exempt Loan Significant cost savings compared to traditional publically offered bond credit enhancements with less documentation resulting in a more efficient execution Garden, mid-rise or high-rise multifamily properties with 4% LIHTC with 90% occupancy for 90 days Fixed Rate Floating Rate Minimum DCR 1.15x 1.20x; with interest rate hedge Maximum LTV 90% of market value 85% of market value; with interest rate hedge Loan Term Up to 18 years Up to 10 years Construction Loan Up to 36 months Up to 36 months Freddie Mac 34

35 Side-by-Side Comparison: Tax-Exempt Bond Placement and Direct Purchase of Tax-Exempt Loan Bond Purchaser Tax-Exempt Bond Placement Tax Exempt Bonds (payable solely from Borrower Note ) $ Purchase Price (pursuant to Bond Purchase Agreement ) Loan to Borrower (pursuant to Loan Agreement ) Government Entity as Issuer $ Borrower Note Funding Lender Direct Purchase of Tax-Exempt Loan Government Lender Note (payable solely from Borrower Note ) (Governed by Funding Loan Agreement ) $ Funding Loan to City as Governmental Lender Loan to Borrower (pursuant to Loan Agreement ) Governmental Lender $ Borrower Note Borrower Borrower Freddie Mac 35

36 Bond Products Comparison Chart Tax-Exempt Loan Credit Enhancement for Direct Placement Bonds Cash Loan with Short Term Bonds Bond Credit Enhancement with 4% LIHTC Bond Credit Enhancement with Other Affordability Components More efficient, more cost effective alternative to publically offered taxexempt bond credit enhancement Private placement loan product with fewer documents and participants Immediate and Forward Executions available Fixed and Variable rate executions available Min DCR Max. 90% LTV Terms up to 18 years Max amortization of 35 years Minimum 10 years prepayment protection More efficient, more cost effective alternative to publically offered taxexempt bond credit enhancement Private placement bond product with fewer documents and participants Immediate and Forward Executions available Fixed and Variable rate executions available Min DCR Max. 90% LTV Terms up to 15 years Max amortization of 35 years Minimum 7 years prepayment protection Cash loan, secured by the property, that provides collateral for tax-exempt bonds with 4% LIHTC Bonds paid off when units placed in service. Cash loan remains in place. Cash loan coupled with privately placement bonds. Immediate and Forward Executions available Fixed and Variable rate executions available Min DCR Max. 90% LTV Terms up to 18 years Max amortization of 35 years Yield maintenance followed by defeasance Traditional, publicly offered bond credit enhancement Public bond offering with multiple participants Immediate and Forward Executions available Fixed and Variable rate executions available Min DCR Max. 90% LTV Terms up to 35 years Max amortization of 35 years Fee Maintenance is required New or replacement credit facility for taxexempt housing bonds Public offering or private placement bond executions available. Immediate and Forward Executions available Fixed and Variable rate executions available Min DCR* Max. 85% LTV* Terms up to 30 years Max amortization of 30 years Fee Maintenance is required *Higher leverage may be available in Tier 1 and Tier 2 Markets. Freddie Mac 36

37 Bridge to Resyndication Terms Minimum DCR 1.15x Maximum LTV Maximum 85% Cash Equity Required: 15% (if owned < 3 years) Loan Term 24 months, one 6-month extension with approval Benchmarks Bond Inducement Resolution. 4% LIHTC allocation. Final plans, budget and specifications for rehabilitation. LIHTC investor commitment. Commitments for all other sources necessary to close the LIHTC resyndication. Freddie Mac 37

38 Fannie Mae Multifamily Affordable Housing Presentation to NALHFA April, Fannie Mae. Trademarks of Fannie Mae Fannie Mae. Trademarks of Fannie Mae. 1

39 Millions Fannie Mae is Committed to Affordable Multifamily MAH Production $4,000 $3,000 $2,000 $2,300 $3,800 $2,300 $2,600 $,3, $1,000 $ In Billions Total MF $24 $34 $29 $29 MAH $2.3 $3.8 $2.3 $ overall volume for all Multifamily is $42.3 billion 2015 Fannie Mae. Trademarks of Fannie Mae 39

40 Fannie Mae is in every market, every day Fannie Mae MAH pursues business with recorded affordability restrictions Very Low Income <=50%AMI Low Income <=60% AMI Mixed Income Fannie Mae offers the most flexibility with our single-asset security Fixed and Floating Rate Options No minimum or maximum loan size and terms 5-30 yrs. Taxable and Tax-Exempt Solutions Fannie Mae offers the fastest and most reliable execution for all financing types Acquisitions and Refinance Moderate and Substantial Rehab Preservation 2015 Fannie Mae. Trademarks of Fannie Mae. 40

41 Choose the Fannie Mae Tax Exempt Bond Financing Solution that Works for You! Fannie Mae offers very competitive pricing with the most flexibility, as well as the fastest and most reliable execution Fannie Mae. Trademarks of Fannie Mae 41

42 MBS as Tax Exempt Bond Collateral (M.TEB) Obtain a lower interest rate and significant savings over the life of the loan when combining the ease of our MBS execution with the benefit of tax exempt bonds. Benefits Close faster with our unique delegated model Available for fixed-rate and variable-rate bonds bps better pricing than traditional bond credit enhancement Interest-only is available Fannie Mae guaranteed direct pass through of principal and interest is more attractive to bond buyers No minimum or maximum loan size Competitive Advantage Loan terms up to 30 years Declining prepayment options OR yield maintenance LTV s up to 90% Available for taxable as well as tax-exempt bonds No master or special servicer with Life-of-loan servicing Delegated underwriting model provides certainty of execution Wide investor base offering attractive pricing due to the appeal of the MBS The industry s most experienced Affordable Housing experts 2015 Fannie Mae. Trademarks of Fannie Mae 42

43 The M.TEB Advantage DUS MBS Appeal Guaranteed direct pass through of principal and interest MBS viewed more liquid investment More liquid investment & Guaranteed Direct Pay Promotes a wider investor base Wider Investor base Lower pricing Life of loan savings Obtain a lower interest rate and significant savings over the life of the loan when combining the ease of our MBS execution with the benefit of tax-exempt bonds 2015 Fannie Mae. Trademarks of Fannie Mae 43

44 M.TEB Benefits Attract crossover bond buyers from the taxable market who frequently purchase MBS securities MF Bonds typically have maturities in the year range, attracting fewer traditional bond investors and therefore requiring a premium be paid to those investors This additional taxable investor base is comfortable with the MBS security Product s transparency is appealing - security s information available via Bloomberg or Fannie Mae's website MBS securities are liquid (favored in times of volatility and "flight to quality ) & the M.TEB will likely be viewed similarly 2015 Fannie Mae. Trademarks of Fannie Mae 44

45 M.TEB Execution Options Fannie Mae offers very competitive pricing with the most flexibility, as well as the fastest and most reliable execution. Fixed or variable-rate bonds Variable-rate execution utilizes the Structured ARM MBS using LIBOR index Immediate delivery or Stand-By Forward execution Refundings or new issues with 4% LIHTC Available for tax-exempt and taxable bonds Flexible prepayment terms Declining prepayment Yield maintenance Lock-out Terms from years, with amortization schedules up to 35 years Interest Only available 2015 Fannie Mae. Trademarks of Fannie Mae 45

46 Flexible Application of M.TEB Structure New Construction Construction loan or letter of credit required Reduced Occupancy Affordable Rehabilitation (ROAR) No Construction loan needed; rehab costs of up to $120,000 /unit M.TEB Variable Rate with Structured ARM Term of 10 years (up to 18 years); LTV of 75% Permanent bond pricing locked at issuance Monthly payment of interest during construction phase Upon Conversion, MBS will be delivered to the Trustee and secure the Bonds During the Construction phase, Borrower will pay debt service on the bonds and construction loan or letter of credit Minimum occupancy of 50% and minimum DSC of 1.0% (interestonly) MBS Structure modified to provide Fannie Mae direct credit enhancement during rehab period which will convert to MBS upon completion of rehab Increased leverage opportunities when underwritten to asimproved rents Interest rate savings similar to full MBS Tax Exempt Pass Through Bond execution Interest rate is established as the applicable index of 1 or 3 month LIBOR plus the Margin Interest Rate Cap Required for a minimum of 5 years Varying Prepayment Options One year lock-out followed by prepayment premiums starting at 1-4% 2015 Fannie Mae. Trademarks of Fannie Mae 46

47 Index Bonds Credit Enhancement of variable rate tax-exempt Index Bonds or Floating Rate Notes (FRNs) with no put option, liquidity support or remarketing costs. Key Terms and Benefits year terms Amortization up to 35 years LTV up to 85% Minimum DSCR of 1.00x at the Underwriting Rate Interest rate cap period 5 years New money issues, refundings or credit substitutions Marshall Field Garden Apartments 2015 Illinois Housing Development Authority Variable Rate Issue $102,000, year term SIFMA Index bps 4% LIHTC Acquisition & Rehab 2015 Fannie Mae. Trademarks of Fannie Mae 47

48 Index Bonds: Pricing Considerations Pricing of Floating Rate Notes is structured as a spread to the SIFMA or LIBOR index Pricing spreads change over time similar to the way credit spreads change In the current environment, investors generally do not want maturities beyond seven years Large volume of high net worth investors or high income taxes = Higher Demand Tighter Spreads High Demand States New York California Connecticut New Jersey Maryland Virginia North Carolina Georgia 2015 Fannie Mae. Trademarks of Fannie Mae 48

49 What is ROAR? (Reduced Occupancy Affordable Rehab) Fannie Mae s permanent financing solution for property renovations up to $120,000/unit where economic and physical occupancy may be reduced to as low as 50% during the renovation period. The permanent loan closes and funds before rehabilitation begins and includes funds for renovations, eliminating the need for a construction loan with a forward commitment on a permanent loan. LTV is based on the as-improved value Fannie Mae. Trademarks of Fannie Mae 49

50 Reduced Occupancy Affordable Rehab (ROAR) Immediate, permanent financing for major rehab allowing tenant displacement; no separate construction loan. Benefits Interest-only payments during the renovation period Proceeds are fully funded at closing Up to 90% of as stabilized LTV during the rehab period During rehab: Minimum occupancy of 50% Minimum DSCR of 1.0x (interest-only basis) Rehab costs up to $120,000 per unit Increased leverage opportunities when underwritten to as-improved rents. Competitive Advantage One loan solution for construction and permanent financing Initial cash execution and our single asset security allow for flexible loan terms and prepayment structures that can be tailored for any transaction Competitive pricing and terms Experienced, dedicated affordable team partners with you to provide expert solutions 2015 Fannie Mae. Trademarks of Fannie Mae 50

51 Reduced Occupancy Affordable Rehab (ROAR) Key Terms Eligible Properties Eligible Sponsors LTV Term Amortization Rehab Period Minimum Loan Size Loan Disbursement Terms Stabilized MAH; rehab range typically $40K-$120K/unit Strong sponsors with demonstrated tenant-in-place rehab track record Up to 90% as stabilized 5-30 years Up to 35 years months $5 million Fully funded at closing; rehab funds escrowed by Lender 2015 Fannie Mae. Trademarks of Fannie Mae 51

52 ROAR Sponsor Profile Demonstrated positive experience with at least two tenantin-place rehab projects of similar size and scope and where at least 50% of the property s units rehabilitated Full construction completion guaranties required Strong net worth and liquidity requirements to support the transaction size and risk profile 2015 Fannie Mae. Trademarks of Fannie Mae 52

53 ROAR Eligible Property Types Section 8 HAP Contract properties utilizing newly funded 4% or 9% LIHTC Properties utilizing newly funded 4% or 9% LIHTC, with rents 10-15% below market rents Properties utilizing newly funded 4% or 9% LIHTC with rents close to market rents Transactions with significant equity (e.g. existing low leveraged properties) where refinance proceeds will be used to fund the rehabilitation Modestly underperforming properties taken over by strong affordable operators, with a modest rehabilitation or repositioning strategy that will improve the property performance and may improve rent levels 2015 Fannie Mae. Trademarks of Fannie Mae 53

54 Balmoral I & II First ROAR Transaction 192 unit property outside of Boise, ID Property struggled with low physical occupancy, high debt service, rent concessions, and poor property management Seen as an opportunity asset, ROAR allowed Sponsor to borrow on the property s projected as stabilized value/dscr $1.2 million of the $7.2 million loan is backed by a letter of credit until property stabilizes 2015 Fannie Mae. Trademarks of Fannie Mae 54

55 Tabaré Borbón Customer Account Manager Multifamily Affordable Housing Visit the new Multifamily website today! Fannie Mae. Trademarks of Fannie Mae. 55