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Sustainable Homeownership Donna Greene- Regional Diverse Segments Manager Delaware Governor Housing Conference October 7, 2014.

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Presentation on theme: "Sustainable Homeownership Donna Greene- Regional Diverse Segments Manager Delaware Governor Housing Conference October 7, 2014."— Presentation transcript:

1 Sustainable Homeownership Donna Greene- Regional Diverse Segments Manager Delaware Governor Housing Conference October 7, 2014

2 Agenda Discussion topics:  Current market conditions  The first-time homebuyer segment  First-time homebuyer characteristics  Products and programs to help first-time homebuyers purchase a home  Wells Fargo’s commitment to first-time homebuyers  Tools and resources to help first-time homebuyers  Financial Reform –Qualified Mortgage/Non-qualified Mortgage –Ability to Repay  Questions 1

3 2 First-time homebuyers Understanding the segment and their financing needs

4 Current market condition Customer characteristics and market conditions may impact first-time homebuyers:  Low inventory  Competing with cash buyers/investors  Credit readiness  Understanding the homebuying process  Product options and cost  Savings for a down payment  Preparation for sustainable homeownership 3

5 This chart shows a significant downward trend in the first-time homebuyer share in the last two years since the first-time homebuyer tax credit expired in June 2010 First-time homebuyer share of home purchases (not dollars) in 2013 is expected to be about the same as the 2012 rate of 39% 4 2. NAR. Profile of Home Buyers and Sellers, 2012 First-time homebuyers

6 Millennial first-time homebuyers From now and through at least the next 10 years, there are significantly more Millennial consumers coming of “homebuying age” as compared to Baby Boomers : 5 mm more at 63 mm 2018 : 8 mm more at 84 mm 2023 : 9 mm more at 85 mm 5 Source: U.S. Census Data

7 Changing life paths coupled with economic uncertainty may lead us to a new paradigm for Millennial where the question is not IF, but WHEN they will decide the time is right to purchase a home. Source: Fluidity as the New Foundational Brand Principle for Millennials, The Futures Company, Spring 2010 Traditional linear lifestage trajectory Possible Millennial Trajectories Live with parents Cohabit with partner Get divorced Move in with friends Get an education Start career Get married Have children Travel abroad Children leave home Live with parents Get an education Start career Have children Go back to education Get married Move back home Change career Cohabit with partner More additions to family Older kids leave home Buy home Sell home Look for new home The Changing Life Path of Consumers Millennial first-time homebuyers

8 What are the challenges of first-time homebuyers? Need money for a down payment Limited or no credit history Limited income and/or assets Finding properties in their price range Poor credit history 7

9 8 Products and programs that meet first-time homebuyer needs Product/ Program Key featuresFTHB needs met FHA  3.5% minimum down payment  Down payment and closing costs may come from a qualified gift source or FHA/WFHM down payment assistance program  Non-traditional credit sources allowed  Non-occupant co-borrower  Seller contributions up to 6%  Upfront mortgage insurance may be entirely financed  All FHA loans are fully assumable to qualified borrowers FHA loans have the benefit of a low down payment but there are other loan products with the same option. Be certain to have the borrowers ask their home mortgage consultant to help them compare the overall costs of all products, including the monthly and long-term costs and conditions of the required mortgage insurance. In many instances, they may find FHA to be a more expensive financing option and should only be considered after thoroughly evaluating all other product options that meet their credit qualifying and financial needs.  Limited funds for down payment  Limited credit history VA  No or low down payment options  Seller financing concessions are allowed up to 4% of the appraised value  No mortgage insurance is required (VA does charge a funding fee based on the branch of service and/or previous use of VA home loan benefits)  Loans are fully assumable  Non-traditional or limited credit histories are allowed  Limited funds for down payment  Limited credit history

10 9 Products and programs that meet first-time homebuyer needs Product/ Program Key featuresFTHB needs met Purchase & Renovate SM program  Loan amount based on the appraised after-improved value of the home  Down payments as low as 3.5%  Improvements can range from basic repairs and upgrades to more extensive renovations  Renovation costs are spread through the mortgage term  Fixed-rate and adjustable-rate loan terms available  Renovation begins right after loan closing  Loan will cover the home’s purchase price, plus all the costs of needed and desired repairs, upgrades, additions or renovations  fulfills two needs with just one application, one loan approval, one closing and one monthly mortgage payment FHA loans have the benefit of a low down payment but there are other loan products with the same option. Be certain to have the borrowers ask their home mortgage consultant to help them compare the overall costs of all products, including the monthly and long-term costs and conditions of the required mortgage insurance. In many instances, they may find FHA to be a more expensive financing option and should only be considered after thoroughly evaluating all other product options that meet their credit qualifying and financial needs.  Limited funds for down payment  Older homes and foreclosure properties that are more likely to be listed within a FTHBs price range Conventional/ Conforming  Down payments as low as 5%  Gift funds allowed for down payment, closing costs, or pre-paids.  A gift or grant from a municipality, non-profit religious organization, nonprofit community organization or the borrower’s employer is allowed  Seller contributions up to 9%  Limited funds for down payment Home Opportunities SM program  3% minimum down payment  Minimal down payment based on credit score  Allows non-occupant co-borrowers on 1-2 units with certain requirements  Reduced mortgage insurance coverage  Down payment Assistance Programs (DAPs) allowed  Limited funds for down payment  Limited credit history

11 10 Products and programs that meet first-time homebuyer needs Product/ Program Key featuresFTHB needs met Community Development Mortgage Program (offered in certain states)  No income limits; purchase home must be in low or moderate census tract, maximum loan amount is $417,000  Homebuyer education programs  Low down payments - LTV up to 98%  No mortgage insurance required  30-year fixed-rate terms  Owner-occupied purchase properties  DTI of 38% or maximum DTI of 42% with a 720 credit score and six months PITI in reserves  Flexibility on the source of closing costs (such as gifts) and approved Down payment Assistance Programs (DAPs)  No cash reserve requirements for Standard CDMP  Limited funds for down payment  Limited credit usage  Unfamiliar with home financing process Mortgage Revenue Bonds, Mortgage Credit Certificates (MCC) and Down payment Assistance Programs (DAPs)  Offered by various state, county, city and governmental coalitions including non-profit organizations  Lower interest rates and/or down payment and closing costs assistance  Assist in qualifying homebuyers  Limited funds for down payment Good Neighbor Next Door  Eligible borrowers purchase HUD-acquired homes located in HUD-designated revitalization areas:  At a 50% discount from the list price; HUD places a 50%, zero-interest, forgivable, second mortgage on the property.  With a down payment of $100 (applies only if FHA financing is used)  Non-traditional credit sources allowed  Limited assets  Limited funds for down payment  Limited credit history

12 Wells Fargo is committed to responsible lending and advancing sustainable homeownership. We want to see all consumers achieve their homeownership goals and stay comfortably in their homes for years to come. And that begins with helping people understand all the aspects and obligations of purchasing a home, so they can realistically assess their own readiness and be better able to make informed decisions. Resources that may help your homebuyers prepare for successful homeownership:  My FirstHome SM – Online education program  The Wells Fargo Home Lending Learning and Planning Center – online resources center  My Home Roadmap – aids borrower in becoming mortgage ready 11 Wells Fargo Home Mortgage’s commitment to first-time homebuyers

13 12  Designed to help first-time and ready- again homebuyers prepare to purchase a home and become responsible homeowners  It’s great for users who want to learn about finding, financing and owning a home  Engaging and interactive learning experience  Flexible, self paced A free, online educational program: My FirstHome SM education

14 13 Wells Fargo Home Lending Learning and Planning Center  Resonates with today’s research- oriented homebuyers  Intuitive navigation, on-demand tools and easy-to-follow information  Users can return at any time to clarify certain information, or begin the application process online A website experience that blazes a clear path from interest in buying a home through closing and beyond:

15 We have many additional tools and resources to support first-time homebuyers in their journey to buy their first home:  Mortgage Product Guide  First-time Homebuyers Guide  Home Financing Process Checklist  First-time Homebuyer Workshops  Product Options Tool  Mortgage Calculators  Homebuying Checklists 14 Tools and resources to help first-time homebuyers

16 Key terms: QM/Non-QM and Ability to Repay (ATR) 15 Financial Reform

17 What is the Financial Reform Act? The Financial Reform Act was passed in July 2010 to establish new requirements to govern banks, insurance companies and hedge funds, as well as other publicly- and privately-held companies in the financial services industry. The act also impacts mortgage brokers, correspondent lenders, originators and servicers. 16 In January 2013, the Consumer Financial Protection Bureau (CFPB) issued seven rules implementing many elements of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the official name of the Financial Reform Act. These rules impact a broad range of mortgage banking activities, from origination to servicing to the secondary market.

18 Wells Fargo Home Mortgage is currently adhering to these new regulations Financial Reform includes new laws and regulations impacting all mortgage lenders and changing the way Wells Fargo – and the entire financial industry – will do business in the future. The new regulations intend to protect consumers and prevent abusive underwriting practices that contributed to the mortgage crisis. 17

19 What are the seven Financial Reform rules that were issued January 2013? 1.Ability to Repay/Qualified Mortgage 2.High-Cost Mortgage and Homeownership Counseling 3.Appraisal Delivery Requirement 4.Appraisal Standards for Higher-Priced Mortgage Loans 5.CFPB Servicing Standards 6.Loan Origination Compensation 7.Escrow Requirements (took effect June 1, 2013) 18

20 Ability to Repay Largest impact to your buyers For customers, the Financial Reform change that will have the most impact is the Ability-to-Repay (ATR) rule. This rule will require customers to provide additional documentation to support their ability to repay their mortgage. It requires lenders to obtain and verify information showing that customers have the capability to pay their mortgage debt or home equity loan obligation. Generally, Wells Fargo already meets the rule’s standards with our current underwriting policies and processes. This regulation creates minimum underwriting standards lenders must use in confirming a customer’s ability to repay their loan according to the loan terms. 19

21 All lenders must consider eight underwriting standards To evaluate the ability to repay, these eight underwriting standards must be considered: 1.Current or reasonably expected income or assets that the customer will use to repay the loan 2.Current employment status 3.Credit history 4.Monthly mortgage payment (calculated using the fully indexed rate and the fully amortizing payment) 5.Monthly payments for other mortgage-related obligations, such as property taxes and insurance 6.Monthly payments on simultaneous loans secured by the same property 7.Other debt obligations, including alimony and child-support 8.Debt-to-income ratio (DTI) 20

22 All lenders will be held to the same standards Depending on when a consumer last experienced the mortgage origination process, they may have to provide more information to lenders when applying for a mortgage. It’s important to be proactive in informing your clients on what to expect as a result of Financial Reform. For example, they should know that all lenders are required to:  Make a reasonable and good faith determination that the consumer has the ability to repay the loan according to its terms.  Verify and document, through independent third-party records, the information they used to make that credit determination. With the new rules, all lenders will be held to the same, specific standard to help advance sustainable homeownership. 21

23 Documentation customers must provide Lenders must look at a customer’s financial records and verify the information with reliable third-party records such as: 1.A copy of a tax return filed with the IRS or state taxing authority 2.A record the lender maintains for an account of the customer held by the lender 3.Documents or other records prepared or reviewed by an appropriate person other than the customer, the lender, or the mortgage broker, or an agent of the lender or mortgage broker 22

24 Qualified Mortgage vs non-Qualified Mortgage Lenders are allowed to originate non-QM loans but they still must meet the ATR requirements. A new classification – Qualified Mortgage (QM) – refers to a specific set of loan parameters, that when met, ensure the borrower has met all the ATR requirements. Such loan parameters include: specific product, documentation, points/fees and debt-to-income requirements (not to exceed 43%). 23 All lenders can originate both QM and non-QM mortgages. Lenders will have the ability to determine their own approach to originating non-QM loans. Wells Fargo is committed to providing credit to credit-worthy borrowers that may not fit QM standards but do meet the Ability-to-Repay requirements and Wells Fargo’s credit policies. Examples of Non-Qualified Mortgages (non-QM) include loans with:  Terms longer than 30 years  Interest-only payment feature  Balloon payment  Negative amortization  Debt-to-income (DTI) ratio higher than 43%

25 How can you help keep the loan process moving? Wells Fargo Home Mortgage has several tools available to help your buyers throughout the mortgage process.  My FirstHome SM  My Home Roadmap SM service  The Wells Fargo Home Lending Learning and Planning Center  PriorityBuyer ® preapprovals  The Home Financing Process Checklist 24 Let your clients know they will be expected to provide documentation about their current sources of income and financial obligations in a timely manner. Being prepared with this information will help keep the loan process moving.

26 Wells Fargo remains focused on helping all of our customers succeed financially while complying with the changes that affect the home lending business. 25 This information is for real estate, builder, legal and financial planning professionals only and is not intended for distribution to consumers or other third parties. Information is accurate as of date of printing and is subject to change without notice. Wells Fargo Home Mortgage is a division of Wells Fargo Bank, N.A. © 2013 Wells Fargo Bank, N.A. All rights reserved. NMLSR ID /13


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