Mortgage Ready Millennials FALHFA Annual Conference July 13th, 2018

Agenda for Discussion Demographics Student loan debt Mortgage ready population Barriers to homeownership Mortgage weak

Individual Demographics Source: Freddie Mac calculations using anonymized credit bureau data for Sep 2016 Millennials tend to have lower income and lower credit scores compared to overall population. The median student loan debt for Millennials is zero since majority do not have student debt. African-Americans and Hispanics tend to be younger than overall population. African-Americans, Millennials, and Hispanics tend to have lower income and lower credit scores compared to overall population. CONFIDENTIAL

How Many Have Student Loans? 21% of Millennials have student loan debt. The older Millennials have the largest percentage of student loans above $10,000. Source: Freddie Mac calculations using anonymized credit bureau data for Sep 2016

What Do the 21% with Student Debt Look Like? The median student loan debt for Millennials is $15,000. Old Millennials have 20% percentage of loans that are more than $45,000. Source: Freddie Mac calculations using anonymized credit bureau data for Sep 2016

How Much Does Student Loan Debt Matter for Millennial Mortgage Ownership? Overall, student loan debt has negative impact on mortgage ownership rate. A 10 percent increase in student loan debt-to-income ratio is associated with a 3 percentage point decrease in mortgage ownership rate. A 10 percent increase in income is associated with a 31 percentage point increase in mortgage ownership rate. A 10 percent increase in single-family house prices is associated with a 10 percentage point decrease in mortgage ownership rate. For Millennials, the impact of student loan debt is similar to the general population. Source: Freddie Mac calculations using anonymized credit bureau data for Sep 2016

What Is Our Definition of “Mortgage Ready” and “Mortgage Weak”? “Mortgage Readiness” – definition based on research criteria not actual underwriting. “Mortgage Ready” FICO score greater than 620 and… Total DTI ≤ 45% No foreclosures in the past 84 months No bankruptcies in the past 84 months No severe delinquencies (120- 180 DPD) in the past 12 months “Mortgage Weak” FICO score less than 620 and/or … Total DTI > 45% Foreclosure in the past 84 months Bankruptcy in the past 84 months Severe delinquency (120-180 DPD) in the past 12 months

How Many Are “Mortgage Ready”?   Total Population % Millennial “Mortgage Weak” 39 46 “Mortgage Ready” 35 40 Mortgage Owner 26 14 Of Millennials, 40% (8.9 million) are “mortgage ready”. Another 46% are “mortgage weak”. 22,458,150 “Mortgage Ready” Millennials 92,432,400 “Mortgage Ready” Total Population 26,149,500 “Mortgage Weak” Millennials 104,788,150 “Mortgage Weak” Total Population Source: Freddie Mac calculations using anonymized credit bureau data for Sep 2016

What Are the Demographics of the Millennial Population?   Age Income FICO DTI % All Debt Total Population 48 64 719 9 4,818 Millennial Mortgage Owner 32 76 742 27 180,805 Millennial “Mortgage Ready” 51 720 6 7,833 Millennial “Mortgage Weak” 28 34 533 10 Source: Freddie Mac calculations using anonymized credit bureau data for Sep 2016 Millennial Mortgage Ready (MR) have lower incomes and higher debt compared to the total population. Millennial MR have similar FICO as the overall population.

Where Are Millennial “Mortgage Ready” Individuals Located and Is It Affordable? Source: Freddie Mac calculations using anonymized credit bureau data for Sep 2016. The affordable indices are obtained from Urban Institute.

Where Are Millennial “Mortgage Ready” Individuals Located and Can They Afford It? Source: Freddie Mac calculations using anonymized credit bureau data for Sep 2016

How Can Down Payment Assistance Help the Millennial “Mortgage Ready”? Household income needed to for qualify down payment assistance programs by MSAs (household size 4) Source: Freddie Mac calculations using anonymized credit bureau data for Sep 2016. DPA income limits obtained from Down Payment Resource.

“Mortgage Ready” Millennials Meeting DPA Criteria Note: Credit bureau data for Sep 2016 to investigate mortgage-ready millennials. Data combines anonymized individual credit bureau data with marketing data to obtain race/ethnicity associated with each individual. a. Calculates the weighted count of the millennials in the metro area that are mortgage-ready and meet the DPA criteria. b. Calculates the percentage of total population with credits in the metro area that are mortgage-ready and meet the DPA criteria. c. Calculates the percentage of the millennials in the metro area that are mortgage-ready. d. Calculates the percentage of the millennials in the metro area that are mortgage-ready and meet the DPA criteria. e. Calculates the percentage of mortgage-ready millennials meeting the DPA criteria in the metro area that are of Hispanic ethnicity. f. Calculates the percentage of mortgage-ready millennials meeting the DPA criteria in the metro area that are of African American race. In the Tampa – St. Petersburg MSA area, 7% of “mortgage ready” Millennials meet DPA and 21% of “mortgage ready” Millennials meeting DPA are Hispanic.

Where Is Adequate Housing Stock - March 2018? Looking at the March 2018 time period, there is an overall shortage of housing. Decrease in housing supply will increase home prices, further reducing affordability. Note: Housing Stock Indicator = for-sale inventory to existing-sale of homes ratio Source: Freddie Mac calculations using data from Redfin.com for Mar 2018.

Where Is Adequate Housing Stock - May 2018? Looking at May 2018, you see the housing shortage has further deteriorated since March 2018. *Based on data from Redfin.com for May 2018 to investigate housing stock.

Zoom In: Where Is Adequate Housing Stock in Florida - May 2018? Duval Baker Clay St. Johns Sumter Lake Volusia Seminole Pasco Orange Hills-Borough Osceola Pinellass Polk St. Lucie Manatee Sarasota Martin Charlotte Palm Beach Lee Broward Collier Miami - Dade *Based on data from Redfin.com for May 2018 to investigate housing stock.

Based on the entire “Mortgage Ready” population Zoom In: What Does Florida “Mortgage Readiness”, Affordability and Housing Stock Look Like? Based on the entire “Mortgage Ready” population State of Florida Share of MR population = 35% % can afford a SF = 79% % can afford a condo = 88% Housing Stock = 2.8% Note: The Housing Stock data is from Redfin.com for the month of May 2018. Credit bureau data for Sep 2016 to investigate mortgage ready. Calculations based on 10% down, 4% interest rate, 30 year mortgage and Freddie’s House Value estimator.

Share of MR population = 38% Zoom In: What Does Miami “Mortgage Readiness”, Affordability and Housing Stock Look like? Miami MSA Share of MR population = 38% % can afford a SF = 51% % can afford a condo = 78% Housing Stock = 7.7% Note: The Housing Stock data is from Redfin.com for the month of April 2018. Industry rule of thumb is if inventory/sales < 6 then housing is tight. Credit Bureau data for Sep 2016 to investigate mortgage ready. Calculations based on 10% down, 4% interest rate, 30 year mortgage and Freddie’s House Value estimator.

What Do “Mortgage Weak” Millennial Populations Look Like?  Weak Credit Concerns Percent Count Severe Delinquency Measures: Bankruptcy, Foreclosure, Delinquency 120-180 15 76,046 D90 in Last 12 Months 58 302,544 D60 in Last 12 Months 2 8,768 DTI > 45 844 Thin File (2 or Fewer) 22 116,792 No FICO 353 Otherwise Low FICO 3 17,643 Total Mortgage Ready Weak 100 73% of “Mortgage Weak” Millennials have had a delinquency of 90-180 days in the past year. 22% of “Mortgage Weak” Millennials have thin files with clean credit records. Source: Freddie Mac calculations using anonymized credit bureau data for Sep 2016

Who Are the “Mortgage Weak”…Are They Ready? Thin Files 22% of Millennials are “Mortgage Weak” Have no severe delinquencies A DTI less than 45 No credit score The Path Forward Savings Credit Risk Alternatives Credit Used As A Tool Delinquencies 15% have a bankruptcy, foreclosure, or recent severe delinquency 60% of “Mortgage Weak” have a 60 or 90 day delinquency Source: Freddie Mac calculations using anonymized credit bureau data for Sep 2016

What Are the Short, Medium, and Long Term Opportunities for Millennials? Short Term “Mortgage Ready” Population Target cities based on adequate housing stock with “Mortgage Ready” populations Medium Term Thin Files Population Alternative Credit Bank Statements Credit Education Long Term Credit Concerns Population Counseling Borrower Help Centers CreditSmart CONFIDENTIAL

Affordable Lending Analytics and Research Director Questions? Thank You from your presenter? Cindy Waldron - Affordable Lending Analytics and Research Director Cynthia.Waldron@freddiemac.com