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Despite the focus of the world largely being on COVID-19 and quarantines right now, the battle for down payment assistance (DPA) continues to rage quietly in the background. In the most recent instance, HUD has expressed intent to limit (or shut down) national down payment assistance programs, which would effectively create regulatory monopolies in every state. Lack of competition only creates a worse product; therefore, efforts to limit national DPA programs will harm borrowers. (To be clear, when I speak of DPA here, I’m referring to government- or nonprofit-funded DPA, not DPA provided by family or friends.)

One of the arguments behind limiting DPA is the idea that DPA carries with it extra default risk, which is the perspective of FHA and HUD (page 12). To be fair, HUD does back up its claims with some data, but this data has been proven to not consider all risk factors at play (see: A Cautionary Tale of How the Presence and Type of Down Payment Assistance Affects the Performance of Affordable Mortgage Loans). For example, a risk factor that HUD fails to account for is race; blacks are significantly more likely than whites to receive DPA (as explained in the paper summary for the just-mentioned paper) and are also slightly higher risk. When controls for race are factored into risk models, the slightly increased risk disappears, showing that “DPA appears to be unrelated to default risk” (page 12).

This data is significant. For one thing, it suggests that limiting access to DPA will harm minority groups, the exact groups HUD is trying most to help. For another, if DPA is unrelated to default risk then restricting DPA (including nationwide DPA programs) does little to nothing to mitigate risk.

The paper also mentions several benefits that come with DPA: (effective) forced savings for low-income households (page 3) and wealth accumulation from equity as markets rose (pages 12–13). Minority borrowers would be denied these benefits unfairly if DPA were restricted.

This information—DPA doesn’t impact default risk, DPA helps minorities and low-income earners, the many benefits DPA brings to the underserved—comes together to show that limiting DPA is not the solution HUD is looking for. Limiting DPA doesn’t protect loans, but it will harm minorities looking to break into homeownership.

Still, it’s necessary for HUD to monitor the marketplace. Richard Ferguson, President of CBC Mortgage Agency, and Michael Whipple, Vice President of CBC Mortgage Agency, have proposed an alternative course of action in their paper HUD’s Rulemaking on DPA: A Better Way for HUD to Manage Government DPA. Their suggestion is, essentially, to allow continued competition between DPA providers, which will drive forward innovation and consumer-friendly features, and to require transparency of information from all government DPA providers. HUD already has the tools in place for a robust DPA reporting system, so this shouldn’t be too difficult to implement.

In short, while the FHA fund does need to be protected, any action or policy intended to do so needs to be data-driven; furthermore, all policies ought to be very carefully examined to make sure that they don’t hurt the borrowers they are intended to help.

I highly encourage everyone who reads this to read fully A Cautionary Tale of How the Presence and Type of Down Payment Assistance Affects the Performance of Affordable Mortgage Loans and HUD’s Rulemaking on DPA: A Better Way for HUD to Manage Government DPA.

The post Conversation: DPA Doesn’t Cause Loans to Default. appeared first on Chenoa Fund – Down Payment Assistance.

As you may have noticed in our last post, CBCMA has some strong opinions about how HUD and the other governmental authorities should fit and function in our industry. While sustainable housing is our mission, it is critical that law makers, legislatures, and others provide critical guidance and support to programs like ours.

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Through the past 3 years of our tenure, our executive team has researched and publicly commented on many pieces of policy and legislation, and have been participants in the rule making process. As we work towards our goal of sustainable homeownership, it is our secondary mission to join together with legislature and other governmental authorities to make and be the change needed in this industry.

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In effort to make our position even more transparent to those who we work with, we’ve created a Policy & Research section here on our site.

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Policy & Research

This section will include:

• Op-Ed pieces that we’ve published

• Articles from our executive leadership

• Upcoming events and ways to participate in the housing conversation

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We are excited to publish our first piece in this section today titled: HUD’s Rulemaking On DPA:  A Better Way For HUD to Manage Government DPA.

Contrary to the Trump administration’s policy of reducing regulation, HUD’s most recent regulatory plan proposes increased regulation on government-provided DPA, regulation that will prove most harmful to minorities and low-income brackets—the exact groups that DPA has previously been most helpful for. In this upcoming blog post, CBCMA President Richard Ferguson and CBCMA Vice President Michael Whipple break down the problems with HUD’s proposed plan and provide a better solution. This upcoming blog post is a call to everyone in the mortgage industry, particularly those invested in serving the underserved; promoting an open, competitive market; and supporting data-driven policy.

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You can find this and all other policy and research pieces here on our website.

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With COVID-19 flattening the U.S. economy into a bleak and colorless landscape for prospective first-time buyers to navigate, it seems an odd time for the Department of Housing and Development to move forward in their efforts to shut down national down payment assistance plans.

But that’s precisely what’s happening, according to CBC Mortgage Agency president Richard Ferguson.

“It’s really quite troubling,” he says.

HUD has been a vocal opponent of national down payment programs since the 2008 financial meltdown, for which the Department laid some of the blame on the once widespread practice of seller-funded down payment assistance. Ferguson explains that rather than actually providing funds for buyers, sellers were more often in the habit of raising the asking price of their properties and funnelling the proceeds back to buyers through the aid of a non-profit. The inflated prices meant countless buyers wound up purchasing homes that were overvalued shortly before the housing market fell off a cliff and hit every crag on the way down.

“They see a company like Chenoa Fund,” CBC’s down payment assistance program, “and they start to get just a little worried that national down payment assistance programs could have the same kind of affect that they had in 2008,” Ferguson says. “But down payment assistance isn’t what it was 12 years ago.”

Still, HUD has remained active over the past year in trying to eliminate the viability of programs like the Chenoa Fund. Circa Easter 2019, the Department attempted to implement a rule that would have spelled the end of such national DPA programs. Fortunately for Ferguson and CBC, the rule was so poorly worded that, if it had been implemented, it would have also prevented individual states from providing down payment assistance. 

“We immediately followed suit,” says Ferguson. “It was an easy win.”

But HUD has gone back to the drawing board. Ferguson says the Department is attempting to craft a rule that would limit a government entity like the Chenoa Fund to lending within its jurisdiction. Because CBC is a native entity operating on tribal land in Utah, HUD may be hoping the courts limit the Chenoa Fund’s reach to its tribal boundaries.

As far as legal arguments go, it’s not exactly foolproof.
“What HUD’s not recognizing is that the federal government bureau that gave us our charter, the Bureau of Indian Affairs, actually stated that we have the ability to provide down payment assistance or operate nationally,” Ferguson says. Any rule in contravention of that charter would likely be thrown out in court.
 
HUD declined involvement in this story, so questions around why shutting down national DPA programs remains a priority when 30 million Americans are out of work will have to be left unanswered.
 
Ferguson believes such programs are more necessary now than ever. Originators, because of the rapidly changing rules and lending standards that COVID-19 has triggered at the state level – not to mention the murk forbearances add to the equation – are growing increasingly wary of providing down payment assistance to borrowers whose loans may not be able to be sold to state housing agencies.
 
“FHFA would be well served by allowing a national provider of down payment assistance to provide a countercyclical balance to what they states are forced to do when these market issues happen,” he says. “We’re actually saving a lot of deals that the states are no longer accepting because they’ve raised credit requirements or lowered DTI or changed pricing.”

Reducing the amount of DAP available in the market seems like a curious move for a department whose mandate is “to create strong, sustainable, inclusive communities and quality affordable homes for all”. Ferguson feels homeownership is one of the most effective ways of addressing the widening wealth gap that exists in the U.S., and that HUD’s attempt to cripple programs like the Chenoa Fund will fuel further inequality. 
 
“If these down payment assistance programs go away, most of the minorities that are reliant on these programs will be shut out of the market and will be forced to be a permanent renting underclass,” he says.
 
The Chenoa Fund assists approximately 7,000 homeowners every year.

The post Why does HUD want to end national down payment assistance programs? appeared first on Chenoa Fund – Down Payment Assistance.

All mortgage loans, first and second liens, must be transferred to CBC Mortgage Agency as Investor (owner/beneficiary) and Servicer through MERS at the same time the first mortgage is transferred, which will be within seventy-two (72) hours after the first mortgage is purchased, but never before purchase (MERS ORG #1012881). Review this in section 10.2.
We remind all correspondents of the following when registering and transferring MINs:

• Select the correct lien type for the loan
• Ensure the loan amount is correct
• Lender organization ID is entered as the Originator for all first mortgages
• CBCMA organization ID is entered as the Originator for second mortgages
• Borrower(s) social security number is correct
• FHA Case Number is entered and is correct (if applicable)
• Enter the CBC Mortgage Agency loan number as Investor Loan Number

The post 20-22: MERS Transfer appeared first on Chenoa Fund – Down Payment Assistance.

Recently, we’ve been talking a lot about how homeownership is a very effective tool for wealth accumulation, particularly for low- to moderate-income borrowers. However, not every borrower has a clear understanding of what it means to accumulate wealth through homeownership; they just know that it happens. This article is intended to help you teach them how homeownership contributes to wealth building.

First: Equity. At its simplest, homeowners build wealth by growing the equity in their home. There are several things to unpack here. 1) Equity is the current market value of the home minus however much of the mortgage is left; 2) Borrowers grow equity by making their mortgage payments.

Borrowers might only need the above explanation if they already know a little about homeownership, but first-time homeowners will need an example. Consider using this one: Let’s say that you own a home currently worth $200,000 on the market and that you owe $120,000 on that home; that means you have $80,000 of equity. That number grows a little more with every mortgage payment.

After explaining these items, consider showing the borrower how to keep track of his or her growing equity after becoming a homeowner.

Second: Why Equity? Consider explaining to the borrower that equity is like forced savings; this money automatically goes into the home and is “saved” as the borrower makes mortgage payments. This money is then multiplied as the value of the home increases, which is almost guaranteed to happen over time.

The borrower might have questions about why equity matters if it’s tied into a home and therefore not as accessible as a savings account. You can answer this in several ways:

1. No matter what, housing expenses are going to be an important part of a borrower’s budget. It’s not possible to build wealth through renting as a renter; the money spent disappears, essentially. But money spent on owning a house turns that house into an asset that the borrower owns more of every month (and it’s money that is going to be spent anyway).

2. Houses consistently rise in value over time, and they rise a lot; for example, a house worth $52,000 in 1997 is worth $190,000 today. That’s almost four times the value of the original home. Money left in a bank account doesn’t multiply like that.

3. If necessary, equity can be tapped into through refinances, but explain to the borrower why it’s wise to avoid using equity to pay for frivolous expenses. One way to explain that is to use the above example: equity multiplies a lot over time, but that growth is significantly hindered if equity is tapped into a lot, so equity should only be used to pay for very important things.

Third: Time. The final thing to help borrowers understand about equity is the time factor. Equity can build a lot of wealth, and it’s one of the reasons why homeowners are worth so much more than renters; at the same time, equity doesn’t expand exponentially overnight.

Borrowers should know that this doesn’t mean they need to be committed to thirty years in a single home just to build equity; if they move every few years, but remain a homeowner the entire time, it’s still possible for them to build equity. The goal is to responsibly handle their finances so they can avoid a foreclosure, which will remove all equity, or becoming a renter again, which will also have a negative impact on their equity.

There are, of course, many more things that a borrower will learn about homeownership, but a clear understanding of equity and how it helps the borrower build wealth will help the borrower fully understand why owning a home is so important.

The post How to Teach Homebuyers About Wealth Accumulation appeared first on Chenoa Fund – Down Payment Assistance.

FHA Classic: Chenoa Fund’s First Non-DPA Program

A lot has changed in the mortgage industry recently; quarantines and shutdowns have forced everyone to evolve quickly in response to the coronavirus pandemic, and the results haven’t always been good. In particular, borrowers with low credit have been hit hard, and many can’t find lenders willing or able to originate loans for them because lenders are having a hard time selling loans for low-credit borrowers.

This problem can be remedied with the Chenoa Fund FHA Classic program. The FHA Classic is not a form of down payment assistance, nor does it include DPA; rather, it’s an option that enables lenders to originate loans with borrowers in low FICO brackets and then sell those loans.

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Why should lenders consider using FHA Classic?

As mentioned previously, the coronavirus pandemic upset the mortgage industry: large aggregators currently aren’t interested in buying loans attached to borrowers that have a FICO score of less than 680. This situation prevents a large amount of borrowers from getting mortgages and, in turn, reduces income to lenders at a time when money is growing tighter; these lenders have no one to sell these loans to! (The exception being a few aggregators who won’t pay premium prices). This situation is understandable, but hardly desirable.

The FHA Classic program fills this gap for CBCMA’s correspondent lenders. These lenders can originate loans and have them bought by CBC Mortgage Agency, thus growing the pool of viable borrowers closer to pre-coronavirus levels. More borrowers means more loans and more income. The FHA Classic program also has a YSP favorable to lenders; contact our Locks team at locks@chenoafund.org to get more specific numbers.

In short, FHA Classic helps lenders beat the pandemic and responsibly make more money while serving more borrowers.

What are the requirements of FHA Classic?

The following summarizes FHA Classic’s program requirements:

1) No DPA or second mortgage

2) Minimum 640 FICO

3) Available for FHA purchase, Streamline refinance, rate and term refinance

4) No income limits

5) DTI 50% or less

6) 96.5% LTV

7) First time homebuyer not required

These simple requirements enable CBCMA to keep this program running.

How can I take advantage of this program?

You already have access to our program if you are a correspondent lender; contact your account executive, or info@chenoafund.org, to learn more.

If you aren’t a correspondent lender with CBC Mortgage Agency, contact info@chenoafund.org to learn how to join.

The post FHA Classic: The First Non-DPA Chenoa Fund Program appeared first on Chenoa Fund – Down Payment Assistance.

For those who have Conventional loans locked with us, we want to remind you that on 10/2/19 Fannie Mae updated its homebuyer education requirements making homebuyer education mandatory on most loans with an LTV of 95% or greater.  Even though CBCMA may not require it, if your AUS approval requires it, you will need to include the completion certificate demonstrating that at least one of your buyers completed an acceptable course.

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Today CBC Mortgage Agency begins offering a traditional FHA loan not associated with a down payment assistance loan to help with the void created as many aggregators pulled out of the market or significantly cut back their YSP schedule. This product is available for purchase, rate and term refinance, or streamline refinance, FHA insured loans. Optimal Blue will begin reporting the pricing in two weeks, but loans can be registered in our system beginning today. This is only available for those who have migrated to our proprietary loan registration software. Those on our legacy loan registration platform will need to migrate to our new platform in order to deliver loans under this product.

Pricing and guidelines are available on this website.

Correspondents will need to contact their account executives to enable this product in their loan registration menu.

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Last week we discussed several financial reasons why borrowers with good credit need down payment assistance. I had several other points that I wanted to make, but they didn’t fit the scope and length of that article. As a result, this week’s article includes some miscellaneous reasons and data why borrowers with good credit need down payment assistance.

Pragmatic
Borrowers with good credit are less risky to lend to—therefore, these borrowers should always be considered by lenders when marketing DPA. Besides, lenders take a little more risk when originating loans with a small down payment, so smart lenders should offer DPA to borrowers with good credit anyway to alleviate some of that small risk.

That isn’t to say anything against low-credit borrowers who need DPA, of course. These borrowers can be good investments, particularly with the right program. For example, Chenoa Fund DPA has a slightly lower default rate than FHA loans that aren’t paired with DPA—this is in part because Chenoa Fund has good homebuyer counseling that extends beyond closing.

Additionally, DPA helps protect borrowers in the case of a rainy day. Some borrowers have just enough savings to afford a down payment now, but would drain their savings buying a house; these borrowers may be better off using DPA and keeping their savings for emergencies. All borrowers have unique circumstances, but borrowers need to know their options in order to make the best decision for themselves.

Social
Research shows correlation between owning a home and many social benefits, according to the Journal of the Center for Real Estate Studies.

Here are a few:

• Homeownership has a positive correlation with higher education (as in, children of homeowners are more likely to stay in school and go on to higher education)
• Homeowners are more likely to participate in local and national civic duties (such as participating in local government or being an active voter)
• Homeownership contributes towards stable neighborhoods, which in turn lowers crime
• Homeownership has a positive relationship with physical and mental health
• Borrowers are better off using DPA and accessing these benefits sooner rather than later, particularly if all that stands between them and homeownership is a down payment.

More Financial Reasons

Last week’s message was, summarized, “homeownership is a financial escalator: borrowers are better off getting on the escalator sooner rather than later.”Attom Data has some further information that supports this argument:

• Buying is more affordable than renting in 54% of US counties—it makes little sense to not help borrowers in these counties buy.
• Rent is rising faster than wages in 60% of markets—borrowers in these markets need help escaping the rent cycle.
• Home prices are rising faster than rent in 59% of US markets—borrowers in these markets are served well by buying now and taking advantage of this value increase.
• Buying is more expensive than renting in the nation’s most-populated counties—but renting still doesn’t contribute toward wealth accumulation for borrowers. Borrowers should still be aware of their options (including DPA), particularly if they can reasonably afford the monthly mortgage payment.
  This all contributes toward the point that borrowers with good credit ought to know what their options are—and these borrowers need access to DPA to help them take advantage of those options.

To Sum Up

The benefits of homeownership are vast, ranging from social to financial. These benefits shouldn’t be denied to any borrower who can afford a mortgage payment. Borrowers need to be made aware of DPA as an option to help them become homeowners, particularly borrowers with good credit.

The post Borrowers With Good Credit Need Down Payment Assistance Part 2 appeared first on Chenoa Fund – Down Payment Assistance.

Richard Ferguson, President, CBC Mortgage Agency

Q: The Urban Institute recently released a report entitled “Breaking Down the Black-White Homeownership Gap.” What is your key takeaway from the report?

A: The report brings into focus a huge racial disparity in homeownership, with nearly 72 percent of white adults owning property while less than 42 percent of black adults own their homes.

Q: What is the biggest factor in the disparity?

A: Income was identified as the biggest factor in the gap. Though the median income in the US for white households exceeds $61,000, the median income for black households was less than $39,000. If the disparity in income were eliminated, the homeownership gap would be slashed by 31 percent.

Q: Was income the only factor in the disparity?

A: No. The report also highlighted how black households are less likely to marry. If the marriage rate were the same between black and white consumers, then the homeownership gap would be cut by 27 percent.

Another factor is credit scores. More than half of white households have a FICO score higher than 700. But among black households, just 21 percent have credit scores of more than 700. In addition, more than a third of black households don’t have enough credit to generate a credit score, while that share is just 19 percent among white households. Without the credit score differences, the gap would be reduced by 22 percent.

Q: Are there any other factors impacting the homeownership disparity that aren’t mentioned in the report?

A: Definitely. One of the biggest factors is intergenerational family wealth. White families are far more likely to have the resources to help family members with a down payment for a home purchase. But that level of wealth is lacking among black families.

The lack of family wealth also plays a role in credit scores, since black families are less able to provide financial assistance to family members who are in distress.

Q: How does down payment assistance, such as the programs offered by CBC Mortgage Agency, impact homeownership disparity?

A: That’s a great question. Down payment assistance programs can have a huge positive effect on the ability of black households to transition from renters to homeowners because they help eliminate the gap created by the lack of intergenerational wealth.

Not only does it provide black families with the ability to make a down payment, but giving these families an ownership stake in their community makes the community itself better. That is because there is a newfound pride of ownership by these families, incenting them to take better care of their homes and play a bigger role in the welfare of the community.

Our own research has found that more than 90 percent of down payment assistance recipients would not have been able to purchase a home without such assistance.

Q: HUD has stated that down payment assistance has a negative impact on FHA performance. Is that an indication that down payment assistance will lead to more foreclosures?

A: No. It’s true that the FHA has suffered losses from down payment assistance in the past. But that was before the financial crisis, when home sellers indirectly provided the assistance and raised the price of the property to cover it.

Seller-funded assistance is no longer around, and today’s down payment assistance programs like CBCMA’s don’t have the same effect on FHA loan performance. This is supported by a report prepared for the Federal Reserve Bank of St. Louis by the Harvard University Joint Center for Housing Studies that indicated down payment assistance has no significant impact on loan performance.

HUD must consider this evidence — that down payment assistance does not have a harmful impact on FHA risk — and avoid tampering with these valuable programs that are successfully helping bridge the racial gap in U.S. homeownership and helping to make FHA a better option for all consumers.

Richard Ferguson is president of CBC Mortgage Agency, a nationally chartered housing finance agency and a leading source of down payment assistance that helps low-income consumers, often in minority neighborhoods, achieve the dream of homeownership. He can be reached at richard.ferguson@chenoafund.org.

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