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Homebuyer Assistance: Discovering Hidden Treasure
- 1. The Art ofHomebuyer Assistance: Discovering Hidden Treasures March 5, 2010 Rob Chrane, President, Workforce Resource Andrew T. Carswell, Ph.D., University of Georgia
- 2. Agenda • • • • • • Affordable vs. WorkforceHousing Misperceptions Market Realities Buried Treasure Case Studies Who Wins? Proprietary and confidential © 2008-2010 Workforce Resource, LLC
- 3. WORKFORCE HOUSING DIFFERSFROM SIMPLE “AFFORDABLE HOUSING” IN THE FOLLOWING WAYS • Home Ownership Opportunities • Proximity to Services/Less Reliance on Commutes • Critical Workforce • Upwardly Mobile/Young Proprietary and confidential © 2008-2010 Workforce Resource, LLC
- 4. Proprietary and confidential© 2008-2010 Workforce Resource, LLC
- 5. Proprietary and confidential© 2008-2010 Workforce Resource, LLC Source: Harvard University Joint Center for Housing Studies
- 6. Proprietary and confidential© 2008-2010 Workforce Resource, LLC Source: Harvard University Joint Center for Housing Studies
- 7. Proprietary and confidential© 2008-2010 Workforce Resource, LLC
- 8. Proprietary and confidential© 2008-2010 Workforce Resource, LLC
- 9. Proprietary and confidential© 2008-2010 Workforce Resource, LLC
- 10. Common Misperceptions andFacts • I thought Subprime was gone! • 0% down- a thing of the past? • Isn’t this what got us here? Proprietary and confidential © 2008-2010 Workforce Resource, LLC
- 11. CRA and GSEs:Culprits or Scapegoats? • • • • Origins Motivation Findings Differences Sources: Report to Congress on the Root Causes of the Foreclosure Crisis Office of Policy Development and Research, U.S. Department of Housing and Urban Development , January , 2010 Rates of Foreclosure in HOME and ADDI Programs Christopher Herbert, Concentrance Consulting Group Inc., Karmen Carr, Ken Lam, Yusuf Makhkamov Proprietary and confidential © 2008-2010 Workforce Resource, LLC
- 12. Market Realities • Tightercredit + media = sidelined consumers • Housing Tax Credit expires = lost incentives • Fewer first-time buyers = move-up gridlock • #1 barrier • Hidden solutions = lost sales Proprietary and confidential © 2008-2010 Workforce Resource, LLC
- 13. Assistance Programs CarryMany Benefits! • $Billions in down payment assistance available • Layering adds more dollars when permitted • 100% financing available • Usually NO monthly payments • Usually 0% interest • Some are grants Proprietary and confidential © 2008-2010 Workforce Resource, LLC
- 14. Have You Heardof…? • • • • • • • • $8,000 Federal Housing Tax Credit Equity Sharing Land Trusts MCCs USDA Rural Development GA Dream Vine City/English Avenue Trust Fund Beltline TAD Proprietary and confidential © 2008-2010 Workforce Resource, LLC
- 15. Forms of Assistance • • • • • • 1stmortgages Grants Soft 2nds Equity sharing Land Trusts EAHP Proprietary and confidential © 2008-2010 Workforce Resource, LLC
- 16. Eligibility Factors • • • • • • • • Location NSP Sales price Householdsize Household income Ownership history Occupation/special circumstances EE, EAHP, TOD Proprietary and confidential © 2008-2010 Workforce Resource, LLC
- 17. Starts with Property •Qualified listings in every community • 37,482,000 units 50% of Owner Occupied housing would qualify for Down Payment Assistance if listed today* *Estimate extrapolated from data captured in American Housing Survey 2007 U.S. Census Bureau and HUD Proprietary and confidential © 2008-2010 Workforce Resource, LLC
- 18. Who Can Buya Modestly Priced Home? • • • • Barriers to homeownership 2,515,600 Three ways to increase affordability Maximum impact – $7,500/+ 8% pts = 5,097,400 – $10,000/+ 12 % pts = 6,454,500 Who Could Afford to Buy a Home in 2004 by Howard A. Savage U.S. Census Bureau Survey of Income and Program Participation, 2004 Proprietary and confidential © 2008-2010 Workforce Resource, LLC
- 19. Dysfunction at theJunction • • • • Fragmented and fractured Confusing and contradictory Hard to understand, harder to explain Buried treasure! Proprietary and confidential © 2008-2010 Workforce Resource, LLC
- 20. Counseling Challenges andOpportunities • • • • • • Reach clients at the right time Limited funding for marketing and outreach Insufficient public awareness Demonstrate value of education and counseling Find new ways to reach consumer Investigate new technologies Source: The State of the Housing Counseling Industry HUD 2008 Report Proprietary and confidential © 2008-2010 Workforce Resource, LLC
- 21. Is it anywonder why… • Professionals struggle • Consumers lose Proprietary and confidential © 2008-2010 Workforce Resource, LLC
- 22. Case Study #1 •Borrower #1: A woman, 88 years old and living on a fixed income of $965/month. • Borrower #2: Her 60 year old daughter lives with her and works as a housekeeper, making $1275/month. • Their current apartment is being condemned and they have 60 days to vacate the premises. • They have found a home nearby and closer to public transit, but the purchase price is $180,000. Proprietary and confidential © 2008-2010 Workforce Resource, LLC
- 23. Assistance SALES PRICE No Assistance $180,000 $180,000 $2,752 $0 LESS:OPPORTUNITY BOND ASSISTANCE $36,000 $0 LESS: AAHOP/ADDI DOWN PAYMENT $10,000 $0 LESS:OTHER- AHA ($20,000), MAP ($35,000), EDI ($12,500) $67,500 $0 AMOUNT FINANCED * funds applied first to CC & Pre-paids $69,200 $174,600 6.50% 7.125% FIRST MORTGAGE TERM 30 30 MONTHLY P & I PAYMENT $437 $1,176 NA $86 MONTHLY T&I ESCROW $285 $285 MONTHLY MORTGAGE PAYMENT $722 $1,547 $26,255 $54,600 $5,452 $7,938 CASH TO CLOSE $116,252 $13,338 LESS AVAILABLE DPA AND GRANTS $116,252 $0 $0 $13,338 LESS: 4% GRANT OF LOAN AMOUNT INTEREST RATE MONTHLY PMI MINIMUM INCOME REQUIRED (33% DTI) CLOSING COST AND PRE-PAIDS NET CASH TO CLOSE Proprietary and confidential © 2008-2010 Workforce Resource, LLC
- 24. Case Study #2 •Borrower: A public school teacher living comfortably on her $47,500 annual salary in a 1 bedroom apartment. • She has been living within her means and has been able to save about $12,000. • Her elderly parents moved to the U.S. from their homeland on the other side of the world to live with her. • Our teacher found a home suitable for the three of them including space for an office. The cost was $249,900. Proprietary and confidential © 2008-2010 Workforce Resource, LLC
- 25. Assistance SALES PRICE No Assistance $249,900 $249,900 $7,996 $0 LESS:OPPORTUNITY BOND ASSISTANCE 2nd $24,990 $0 LESS: ADDI DPA $10,000 $0 $0 $0 $199,900 $242,400 6.50% 7.125% 30 30 $1,264 $1,633 NA $119 $365 $365 $1,629 $2,117 $45,875 $57,350 $8,996 $10,271 CASH TO CLOSE $58,996 $17,771 LESS AVAILABLE DPA AND GRANTS $42,986 $0 NET CASH TO CLOSE $16,010 $17,771 LESS: 4% GRANT OF LOAN AMOUNT LESS: AMOUNT FINANCED * funds applied first to CC & Pre-paids INTEREST RATE TERM OF FIRST MORTGAGE PRINCIPAL AND INTEREST PAYMENT MONTHLY PMI MONTHLY T&I ESCROW MONTHLY MORTGAGE PAYMENT MINIMUM INCOME REQUIRED (43% DTI) CLOSING COST AND PRE-PAIDS Proprietary and confidential © 2008-2010 Workforce Resource, LLC
- 26. Case Study #3 •Borrower: An Atlanta city municipal worker earning $45,500 per year is a 1st-time homebuyer and a single father to a son. • He wants to live close to work and enroll his son in a new charter school just blocks from his office. • He found a condo downtown where he can walk his son to school on his way to work. • The sales price is out of his range at $249,000, but he is considering borrowing against his 401K in hopes of qualifying for a smaller mortgage. Proprietary and confidential © 2008-2010 Workforce Resource, LLC
- 27. Assistance SALES PRICE No Assistance $249,000 $249,000 $5,576 $0 $0 $0 LESS:AAHOP/ADDI DOWN PAYMENT $10,000 $0 LESS: EASTSIDE TAD FUNDS $94,000 $0 $144,000 $241,500 7.00% 7.375% 30 30 $958 $1,668 NA $120 $630 $630 $1,588 $2,418 $44,316 $57,433 $7,379 $7,379 CASH TO CLOSE $112,379 $32,279 LESS AVAILABLE DPA AND GRANTS $109,576 $0 $2,803 $32,279 LESS: 4% GRANT OF LOAN AMOUNT LESS: AMOUNT FINANCED * funds applied first to CC & Pre-paids INTEREST RATE TERM OF FIRST MORTGAGE PRINCIPAL AND INTEREST PAYMENT MONTHLY PMI MONTHLY ESCROW (Condo- Taxes & HOA only) MONTHLY MORTGAGE PAYMENT MINIMUM INCOME REQUIRED (43% DTI) CLOSING COST AND PRE-PAIDS NET CASH TO CLOSE Proprietary and confidential © 2008-2010 Workforce Resource, LLC
- 28. Opportunity • • • • Make housing assistancemore accessible Expand the pool of qualified homebuyers Provide buyers better financing solutions Serve more customers, more efficiently Proprietary and confidential © 2008-2010 Workforce Resource, LLC
- 29. What is DownPayment ResourceSM? • An easy-to-use solution – Automated connection of qualified listings and buyers – Tracks and describes assistance programs • A web-based service for: – – – – Banks and lenders REALTORS® Home builders and developers Housing counselors • A new business generator Proprietary and confidential © 2008-2010 Workforce Resource, LLC
- 30. Capture More First-TimeHomebuyers Down Payment Resource link allows consumers to self-screen for eligibility and request assistance. Proprietary and confidential © 2008-2010 Workforce Resource, LLC Example only, not an actual web page
- 31. Earn CRA CreditsWhile You Sleep Consumers can determine their eligibility for assistance 24/7. Proprietary and confidential © 2008-2010 Workforce Resource, LLC Example only, not an actual web page
- 32. Market Bank-owned REO 80-90%of homebuyers start their search online. Show them where to find their downpayment . Down payment assistance is available for homebuyers. > See if you’re eligible Proprietary and confidential © 2008-2010 Example only, not an actual web page Workforce Resource, LLC
- 33. Multiple Listing ServicePublic Search Site Customizable Down Payment Resource links Consumers to Buyer Assistance Programs Example only, not an actual web page Proprietary and confidential © 2008-2010 Workforce Resource, LLC
- 34. Multiple Listing ServicePublic Search Results Page DPR link can appear on qualifying listings Proprietary and confidential © 2008-2010 Workforce Resource, LLC
- 35. Broker/Agent Search ResultsPage DPR link can appear on qualifying listings Proprietary and confidential © 2008-2010 Workforce Resource, LLC Example only, not an actual web page
- 36. Consumer Self-Evaluation Consumer clicks onlink, answers short list of questions, learns programs they may be eligible for, then requests to be contacted for details. Proprietary and confidential © 2008-2010 Workforce Resource, LLC
- 37. Consumer Contact Request Consumer submitscontact information and requests to be contacted. Proprietary and confidential © 2008-2010 Workforce Resource, LLC
- 38. LO or agent receivesemail with consumer’s contact information and details of eligible programs. Proprietary and confidential © 2008-2010 Workforce Resource, LLC
- 39. Who Wins? • • • • • • Consumers Communities Real Estateprofessionals Small businesses Industries Local, State and Federal Governments Proprietary and confidential © 2008-2010 Workforce Resource, LLC
- 40. Summary Affordable vs.Workforce Housing Misperceptions Market Realities Buried Treasure Case Studies Who Wins? Proprietary and confidential © 2008-2010 Workforce Resource, LLC
- 41. Thank You! Rob Chrane,President, Workforce Resource Andrew T. Carswell, Ph.D., University of Georgia Proprietary and confidential © 2008-2010 Workforce Resource, LLC
Editor's Notes
- #10 SocialQuality of life impairedFamilies sufferLower civic participation and volunteerismEnvironmentalCongestionPollutionNoiseInefficient use of landEconomic sustainabilityHousehold level: combined cost of housing and transportation as % of incomeRegional cycle: to thrive, need job growthCorporate relocation dependant on quality of life metrics and recruiting and retention, vendors and suppliers Schools, hospitals, first responders and other service workers necessaryLocal munis and state government need tax revenues
- #12 Stories and opinions and popular press- No in depth empirical analysisSeized on to support political agendas1977- to meet credit needs, especially LMI neighborhoods- Results reviewed by FedConsidered before M&A, therefore taken seriouslyFannie and FreddieSimilar arguments by same peopleAffordable lending requirementsFindingsCRA requirements in force > 30 yearsMortgage lending covered under CRA fell from 38-46% 1994 to <25% in 2005Small share of high-priced loans by CRA-covered institutions (HMDA-6%)Fan and Fred: evidence proves motivation for market share and profit greater than LMILike CRA, market share in Alt-A and Subprime fell as international demand for MBS grewFindingsSeveral studies conducted; analysis demonstrated much lower default rates, therefore lower riskConclusionCRA helped to ensure “responsible lending even during period of overall declines in underwriting standards”
- #14 There are many benefits to these programs: Layering up to 25 -50 even $100,000 or more is not unheard of! 100% financing IS still available Often, no monthly payments and 0% interest is common Some are conditional grants and never have to be repaid
- #18 First filter in identifying assistance optionsOwner-occupied units- total, not just for-sale
- #19 SourceModestly priced home 25% occ homes <, 75% occ homes aboveRange: non-metro FL $86,000 to metro CA $269,000Usually disqualified for more than one reason Lack of DP Excessive debt Bad credit Insufficient income/rates too high7.6% renter HHs can buy (2,515,600) Guess which is most effective of the 3 ways to increase?Modify DP from 5% to 2.5% + 1%Modify rate reduce rate by 3% + 0.5%DPA $7,500 + 8% 15.4% = 5.1 M $10,000 + 12% 19.5% = 6.5 M
- #20 Junction = intersection of housing policy and point-of-sale
- #22 Agents, lenders, pre-purchase and counselors struggle locating, updating and matchingConsumers either miss the chance to own or leave money on the table
- #24 Key Points:Extreme, but not unheard ofLayered 6 programs for $116,252 in assistanceNo monthly pmts(other than 1st), 0% interestRepayableQualified with ½ income normally requiredPmt ½ too, DTI=32%Lender has 38% LTV, Risky?
- #26 Key Points:Layered 2 programs for $35K + grant for closing costs$2,000 in reserves, didn’t touch retirementReduced pmt by $488Better rate, no PMIHas 80% loan- equity/skin
- #28 Key Points:Building in TAD-20% affordable unitsPrice subsidized by $94K58% LTV- lender safeGrant for closing costs
- #34 This slide shows a possible application for an MLS public facing web site.While buyers must be eligible for assistance, there is also qualifying criteria for properties. The qualifications vary based on the programsand the area of the country.DPR provides a customizable link for Down Payment Resource whichcan link the Consumers to Buyer Assistance Programs.
- #35 The DPR program identifies the properties that are eligible Down Payment Assistance and the DPR link can appear on qualifying listings.This helps the consumer immediately know which properties that they should focus on, if they desire down payment assistance.
- #37 The consumer lands on a page branded to your specs afterclicking on your invitation to learn if they are eligible They answer a short list of questions necessary for a preliminary determination of eligibility HH size, income, ownership status, occupation and special circumstances- it usually takes less than two minutes To the right is the results box which gives them a preliminary determination of how many programs they may be eligible for and how to get details
- #38 Here they simply submit their contact information whichis forwarded to the agent whose site referred them to DPR
- #39 Here’s what the email request looks like when you receive it It tells you: Where they originated Their contact information We’re changing this as we speak so that all you see are the names of the programs that they qualified for You can click on the program name if you want to more details in the Summary View or Expanded View