Economic Impact of Housing on the Underserved

The North Carolina Institute of Minority Economic Development NCIMED 1 April 27, 2010 Economic Impact of Housing on the Underserved

The Institute Who We Are About the Institute The North Carolina Institute of Minority Economic Development (“The Institute”) is a statewide nonprofit organization. The Institute works to build the asset base of underutilized and undeveloped populations through economic development strategies that build businesses and sustain institutions vital to vibrant communities. Since inception in 1986, the Institute has published more than 15 studies/reports. Over the past five years (2004-2009) its business development clients have realized more than $225 million in contracts and Andrea L. Harris, President financial transactions. NCIMED 2

Critical Observation • Underserved Homeownership Shift • GSE’s and FHA Pricing and Fees • Unemployment and Foreclosures • Demographic Landscape Transformation • Commercial Property Impact • Projected Forecast NCIMED 3

NCIMED 4

Impact Of GSE Delivery Fees - $250,000 Home, 95% Loan Borrower Borrower Loss of Total LLPA Note Rate Payment Affordable Loss of Affordability FICO Score % -a) Total LLPA $ Impact Impact Home Impact Affordability % >= 740 0.25% $594 0.06% $9 $248,820 $1,180 0.5% 720 - 739 0.25% $594 0.06% $9 $248,820 $1,180 0.5% 700 - 719 0.75% $1,781 0.19% $28 $246,570 $3,430 1.4% 680 - 699 1 1.00% 2 $2,375 3 0.25% 4 $37 5 $245,454 6 $4,546 7 1.8% 660 - 679 2.00% $4,750 0.50% $75 $241,058 $8,942 3.6% 640 - 659 2.50% $5,938 0.63% $93 $238,898 $11,102 4.4% 620 - 639 3.00% $7,125 0.75% $112 $236,765 $13,235 5.3% Assumptions: Base Note Rate: 5.25% Home Price $250,000 Loan-To-Value % 95% Loan Amount $237,500 HDTI Ratio 31% Example 95% LTV Loan to a FICO 680 borrower: 1 GSE delivery fees sum to 100 basis points, or $2,375 on the $237,500 loan amount 2 Lender must charge as points to borrower (additional cash at closing) or "premium price" into note rate 3 Estimated amount of note rate increase required to generate 100 basis points of additional loan price is 25 basis points 4 Monthly payment increase created by the additional note rate is $112 5 Borrower who could have afforded a $250,000 home now limited to $245,454 due to LLPA fees. 6 Loss of affordability due to LLPA fees. 7 Loss of affordability due to LLPA fees, expressed as a percent of $250,000 original home price *Fannie Mae– Adverse Market Delivery Charge, LLPA by Credit Score/LTV *Freddie Mac– Post-Settlement Delivery Fees, Market Condition, Indicator Score/LTV NCIMED 5

Conventional Loan LLPA Fee Impact $5,000 $4,500 $4,000 Additional Upfront Cost $3,500 Series1 85% LTV $3,000 Series2 95% LTV $2,500 Series3 90% LTV $2,000 Series4 MCM 97% LTV Series5 Flex 97% LTV $1,500 $1,000 $500 $0 620 - 639 640 - 659 660 - 679 680 - 699 700 - 719 720 - 739 740+ Source: NCIMED FICO Scores NCIMED 6

Down Payment FHA Max Financing 3.5% Impact of the New FHA Changes New FHA Max Financing Coverage 100% 3.5% UFMIP 1.75% 100% Monthly MI Premium 0.55% 2.25% Sales Price Base Note Rate 150000 5.25% 150000 5.25% UFMIP Increased 0.55% 150000 5.25% 2.25% Yield Spread Premium over FHA 0.00% 0.00% Premium Pricing of Closing Costs Delivery Fees 4.0 0.00% 1.75% 0.00% 0.00% Jumbo Premium 97% MCM Premium 0.00% Adverse Mkt Premium 0.25% 0.00% < 740 Premium Total Delivery Fees Note Rate Impact of Delivery Fees 4.0 Total Note Rate 5.25% 5.25% Term 360 360 360 Closing Costs Loan Origination* 1.00% 1,500 1,500 Loan Discount Points 0.00% - - Buyer's Attorney* 450 450 450 Title* 0.75% 1,125 1,125 Appraisal* 275 350 350 Survey* 150 150 150 P&C Insurance 0.50% 875 875 Taxes 2.00% 500 500 Recording* 20 20 20 Tax Service* 75 75 75 Credit Report* 50 50 50 Seller Contribution Credit From Note Rate Premium 0% - - Total Closing Costs 5,095 5,095 *Non-Recurring (financable) Cost 3,720 3,720 Max Base LTV (for Premium rating purposes) 96.50% 96.50% Minimum Down Payment 5,250 $2,533.00 Increased 5,250 Non-financed Closing Costs Total Cash to Close 5,095 10,345 $3,257 5,095 10,345 144,750 Base Loan 144,750 UFMIP 2,533 3,257 Financable Closing Costs Total Loan Amount 147,283 148,007 Total LTV% 98.2% 98.7% Monthly Payment 817 P&I 813 66 Monthly MI 66 313 P&C and Taxes 2.5% 313 1,196 Total Monthly Payment 1,192 Months to amortize to 100% LTV Max Seller Decreased 10,345 Total Cash to Close 10,345 Minimum Borrower's Cash Investment 3.5% 5250 Contribution $4,500 3.5% 5250 3% Max Seller Contribution 6% 9,000 $9,000.00 4,500 5,845 Cash Net of Allowable Seller Contribution 5,250 Borrower Income Needed 1,130 Payment for Ratio Purposes: 1,126 Income Ratio 31% 3,644.51 Gross Monthly Income Annual Income to Qualify 3,631.62 43,579.47 Cash to Decreased 43,734.17 closes Cash To Close Tie Out Minimum Down Payment 10,345 5,250 ($3,905) $595 10,345 5,250 5,095 Seller Contribution 5,095 595 Closing Funds from Borrower (3,905) NCIMED 7

African American or Black 23.8% NCIMED 8

NCIMED 9

Deficits: Cause and Effect • Causes – Under current policies, deficits will likely exceed $1 trillion in 2010 and 2011 and remain near that figure thereafter – Bush-era tax cuts; War in Iraq and Afghanistan are the dominate driver of the deficits; TARP, Fannie, Freddie and Stimulus represents a minimum deficit increase • Effects – Greater Budget Cuts and Reduction will matriculate from the federal level to state and local government impacting all sectors – Unemployment and foreclosure projected increase in 2010, 2012 and 2013 will reduce tax revenue resulting in additional stress on the economy NCIMED 10

Unemployment and Foreclosures High unemployment High foreclosure Source: NCIMED Source: CBPP analysis based on Congressional Budget Office estimate NCIMED 11

NCIMED 12

Reset Forecast NCIMED 13

Community Impact NCIMED 14

Community Impact NCIMED 15

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NCIMED 17

Projected African-American and Latino Foreclosures Foreclosures between 2009 and 2012: African-Americans-1,115,189 Latinos-1,480,285 NCIMED 18

Minority Wealth Limited Access Reduced to Buying Power Predatory Lending Capital / Credit Home Foreclosure Negative-Impact Personal Community Minority Future Wealth Wealth Business Credit / Wealth Deteriorating Minority Economics NCIMED 19 19

NCIMED 20

Minority Business Limited Access Reduced to Limited Access to Capital Buying Power Limited Access to Credit Capital / Credit Impact of Minority Foreclosure Negative-Impact Reduction of Community Personal Reinvesting Loss of Minority and and Business Loss of Future Business Wealth Jobs Creation and Services Credit / Wealth Deteriorating Minority Economics NCIMED 21 21

Strategic Focus • Evaluation – All aspect of the business – All business methodology are aligned with the core function and market segment • Preparation – Update and organize all reporting systems and files – Update, adjust or amend short-term and long- term strategies to reflect current economy condition and worse case projected forecast. NCIMED 22

Strategic Solution • 400 Billion Dollar infusion into Small Businesses • Develop Regional MSA Lending Pools • Balance affordable Risk with Capital • Remove Toll-Gates to access Liquidity NCIMED 23

Building Economically Vibrant and Socially Responsible Communities through Research and Information, Education and Training, and Business Development Victor A. Galloway Director of Special Research & Policy Projects vgalloway@ncimed.com NC Institute of Minority Economic Development 114 West Parrish Street Durham, NC 27701 919-956-8889 www.ncimed.com NCIMED 24

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Economic Impact of Housing on the Underserved

by NC Community Development Initiative on May 03, 2010

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