Duty to Serve. Single Family Affordable Lending and Access to Credit May 2018

Transcription

1 Duty to Serve Single Family Affordable Lending and Access to Credit May 2018

2 Freddie Mac s Mission 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 CONFIDENT IAL Freddie Mac 2

3 Duty to Serve The Housing and Economic Recovery Act of 2008 established for the GSEs a duty to serve very low-, low- and moderate-income families in three historically underserved markets: Manufactured Housing Rural Housing Affordable Housing Preservation Each year, the Federal Housing Finance Agency (FHFA) is required to evaluate and rate each Enterprise s performance in each underserved market and report the results to Congress. CONFIDENT IAL Freddie Mac 3

4 Manufactured Housing Real Property and Personal Property (Chattel)

5 Manufactured Housing Real Property Challenges: Low supply compared to demand Limited number of lenders in market Limited sale data available to support resale and valuation Older units need rehabilitation or replacement Freddie Mac will: Increase purchase of real property loans annually over the plan cycle; Develop product flexibilities and guidelines that facilitate new mortgage originations; Increase homebuyer education through partnerships offering a comprehensive homebuyer education platform; and Increase technical expertise for lenders and appraisers to increase participation in the market. CONFIDENT IAL Freddie Mac 5

6 Manufactured Housing Personal Property (Chattel) Challenges: Inconsistent underwriting standards and valuation methodologies; no AUS Limited number of lenders Available financing offers above market interest rates and shorter repayment loan terms Freddie Mac will: Research chattel performance and loan life cycle; produce white paper Initiate a chattel pilot with a select group of experienced lenders; Purchase chattel loans to gain knowledge and understanding of the market; and Expand homebuyer education to include manufactured housing as part of a comprehensive homebuyer education platform. CONFIDENT IAL Freddie Mac 6

7 Rural Housing Regions, Populations & Small Financial Institutions

8 Rural Housing Rural Regions Activities that serve high needs rural regions (areas of persistent poverty) Middle Appalachia, Lower Mississippi Delta, Colonias A tract located in a persistent poverty county Rural Populations Activities that serve high needs rural populations Members of a federally recognized Native American tribe located in an Indian area Agricultural workers Small Financial Institutions Financing of rural properties by small financial institutions with asset size of $304 million or less CONFIDENT IAL Freddie Mac 8

9 High Needs Rural Regions Middle Appalachia, Lower Mississippi Delta, Colonias & Persistent Poverty Counties Challenges: Substandard housing & high cost burden High poverty rates Out Migration Lack of financial institutions Freddie Mac will: Develop product flexibilities and guidelines that facilitate new mortgage originations; Increase the purchase of loans; Support and increase purchases from small financial institutions; Increase homebuyer education through partnerships to provide a comprehensive homebuyer education platform; and Increase technical expertise for lenders and appraisers to increase participation in the market. CONFIDENT IAL Freddie Mac 9

10 10 Middle Appalachia High-needs Counties CONFIDENT IAL Freddie Mac 10

11 11 Lowe Mississippi Delta High-needs Counties CONFIDENT IAL Freddie Mac 11

12 12 Counties with Colonias in Texas CONFIDENT IAL Freddie Mac 12

13 13 Persistent Poverty Counties CONFIDENT IAL Freddie Mac 13

14 High Needs Rural Population Native Americans in Indian Areas Challenges: Trust Land Various tribal governments Substandard housing & overcrowding Lack of financial institutions Freddie Mac will: Increase Homebuyer Education through partnerships to offer a comprehensive education platform and Increase Technical Expertise and Establish Best Practices through partnerships to increase efficiencies in lending in Indian Areas CONFIDENT IAL Freddie Mac 14

15 Affordable Housing Preservation Energy Efficiency Financing & Shared Equity Programs

16 Affordable Housing Preservation Energy Efficiency Financing of single-family energy efficiency improvements on first lien mortgages with credible projections that support: Reduction of energy or water consumption by homeowner, tenant or property by at least 15 percent, and Utility savings over the improvement s expected life exceeding the cost of installation Shared Equity Affordable homeownership preservation through shared equity programs administered by nonprofits, or state or local governments Mechanisms: shared appreciation loans or resale restriction programs (deed restrictions, community land trusts) Programs must promote sustainable homeownership and: Maintain affordability for at least 30 years Include a formula limiting proceeds at resale Maintain preemptive option to purchase at resale CONFIDENT IAL Freddie Mac 16

17 Affordable Housing Preservation Single-Family Energy Efficiency Challenges: Energy or water efficiency improvements on first-lien, single- family homes Freddie Mac will: Conduct research on the impact of energy efficiency improvements on property values and loan mortgage performance; publish white paper Design new or improved product flexibilities, and Develop valuation guidance and data collection mechanisms to account for energy-efficient features. Lack of property-level data Difficult to asses value of energy efficient features Limited awareness about energy efficiency benefits and financing products available CONFIDENT IAL Freddie Mac 17

18 Affordable Housing Preservation Shared Equity Financing Challenges: Limited awareness (borrowers and lenders) Non-traditional financing structures Lack of program standardization Freddie Mac will: Develop product flexibilities and guidelines that facilitate new mortgage originations under shared equity programs, Purchase loans originated under shared equity programs, Support standardization of data collection at the transaction level, Promote market awareness of shared equity programs. CONFIDENT IAL Freddie Mac 18

19 Questions? CONFIDENT IAL Freddie Mac 19

20 Conforming Lending Standards

21 Introductions Kelly Marrocco Single Family Affordable Housing Lending Manager, Freddie Mac Tim Tjosaas Manager Consumer Credit, Compeer Financial Shannon Rill Correspondent Lending Production Manager, AgFirst Farm Credit Bank

22 A Viewpoint from Freddie Mac In general, what is the lending outlook and forecast? Where does Freddie Mac feel they are best used in serving rural markets? What does Freddie Mac see as the biggest challenges in serving rural markets and properties? What changes are anticipated with Freddie Mac to help enhance and broaden their role in consumer lending and/or rural lending?

23 A Farm Credit View What value does having a secondary market outlet bring to your consumer delivery? Broadens the array of options for our clients Gives ability to manage competition as secondary market changes guidelines Can deepen relationships by allowing for lower rates than we can offer via portfolio Offloads some risk Loans don t impact our capital requirements since they are sold Supports our mission of serving Rural America Cross selling opportunities within Association Alternate revenue stream for Association

24 A Farm Credit View What are some of the experiences you ve had in offering secondary market what works and what doesn t in regards to properties or borrowers? Compeer/predecessor organizations: 11 years as a direct Seller/Servicer to Freddie Mac, 17 years with delegated underwriting experiences in the secondary market AgFirst has been a direct seller to Fannie Mae for 23 years with delegated underwriting authority. We provide underwriting, processing, and closing services. Overall a very positive experience with secondary market - Early on learning curve was steep Guideline changes income, assets, debt treatments Properties learning what fits for our area Recognizing that we do not have same flexibility with guidelines as we do for portfolio lending. Someone else is setting the requirements. Determining staffing structure

25 A Farm Credit View Currently the environment feels much more open both in borrowers and property Seeing a change from even just 2 to 5 years ago. Borrowers More opportunity to fit a wider range of borrowers into the secondary market Single borrowers Limited and some weaker credit history Lower incomes Self-employed Affordable Housing Programs

26 A Farm Credit View Property Appears to be more open for rural properties (active farm operation never a fit) Seeing more competition re-enter this space and sending more questionable properties to the secondary market Appraisals have been and always will be the key Freddie Mac s guide has no acreage limit difference though in tillable vs. wooded acreage Fannie Mae s guide has no acreage limit or distance requirements for comparable sales Outbuildings allowed (both FNMA and Freddie) must be supported in appraisal for value adjustments, typical, a portion of the value not the driver What s the driver of the value? Is this truly rural residential even if 40 acres and an outbuilding OR is it a farm. Is there income being derived from the property?

27 A Farm Credit View Freddie Mac and Fannie Mae have been rolling out more tools to aid in the underwriting, processing, selling process Freddie Mac LPA has been and is being enhanced, Loan Quality, Closing and Collateral Advisor tools LPA enhancements include income (wage & self-employment) and asset verifications within the tool Loan Collateral Advisor has been a great enhancement reviews appraisals, provides similar comparable sales & listings, maps, etc Fannie Mae DU Collateral Underwriting Day 1 Certainty Early Check

28 A Farm Credit View When financing rural properties, what are the most important considerations that have to be considered if thinking about using secondary market outlets? Delegated underwriting authority is it possible? Felt was critical to be successful and give the level of client satisfaction and service we wanted to maintain Had delegated authority prior to being an approved seller/servicer with Freddie Mac Important to own this piece given the clients and property we work with Risk to us was the learning curve of what was secondary market eligible Risk continues on repurchases but this can be mitigated Getting approved today is more difficult Associations may want to use Correspondent Lender to underwrite loans.

29 A Farm Credit View When financing rural properties, what are the most important considerations that have to be considered if thinking about using secondary market outlets? (Cont.) Training / expertise Very specific requirements in all aspects Pricing, Income, Assets, LTV, type of home, etc. can we do it all? Need to know what you are dealing with guidelines for Fannie/Freddie but also lender or MI company overlays, etc Search out conferences, webinars (lenders, MI companies, etc.) It s an investment & commitment upfront to doing it right Talk to other Farm Credit Associations participating in secondary market. Those that know the rules win the game.

30 A Farm Credit View Understand your market Is this a niche or can this be one for your program? Competition and what drives them Construction, HomeReady, and HomeStyle Farm Products Pricing Getting it right with the various hits Having enough volume to generate lower pricing/better spreads scale improves pricing Being aware of ALL aspects of file when locking. Servicing/subservicing, if working direct with Fannie or Freddie Brand risk by not servicing ourselves Could we afford to service ourselves with all the requirements & regulations

31 A Farm Credit View What are some of the opportunities and pitfalls in credit and appraisal guidelines from a Freddie Mac and Fannie Mae point of view? Credit Pitfalls: Understanding who is considered self employed and what the documentation requirements are. Must use income documented on tax return, not projections. Be aware of business losses and how they are considered. Self employed borrowers what they expense, their business debts, income trends, etc. Farmer clients cash to close issues, want to use RLOC s (we typically don t allow that) or sale of grain/livestock (need to fully document)

32 A Farm Credit View What are some of the opportunities and pitfalls in credit and appraisal guidelines from a Freddie Mac and Fannie Mae point of view? (Cont.) Opportunities Borrowers who may not fit our preferred credit profile can fit within Loan Product Advisor or Desktop Underwriter May be eligible for reduced documentation Farm Credit is comfortable with self employed income. This could be a competitive advantage.

33 A Farm Credit View Freddie Mac and Fannie Mae, continued Appraisals Pitfalls Many appraisers are not well versed in true rural property Ask questions, know what is on the property. Private roads, outbuildings, land use, shared wells, 2 nd dwelling, etc. Multiple parcels/tracts Explanations, commentary and supporting details are very important with rural property and the appraisal reports» We spend just as much time on appraisal reviews (if not more) than we do on credit.» We request/work with the appraisers for corrections & updates Opportunities We know rural properties and our rural areas very well opportunity to provide this niche and knowledge to those who other lenders may shy away from

34 Open Q & A Time One of the most important things that can be done is setting the appropriate expectations upfront with borrower.