Future Borrowers: Challenges and Opportunities 2018 TALHFA ANNUAL MEETING September 11, 2018 CONFIDENTIAL

Agenda Comparative Demographics Student Loan Debt “Mortgage Ready” Perspective Affordability “Mortgage Weak” Perspective CONFIDENTIAL CONFIDENTIAL - PROPRIETARY FREDDIE MAC INFORMATION FOR DISCUSSION PURPOSES - DO NOT COPY OR REDISTRIBUTE

Individual Demographics Note: Credit Bureau data for Sep 2016 to investigate consumers’ credit. Median average values are used. Data combines anonymized individual credit bureau data with marketing data. 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 CONFIDENTIAL - PROPRIETARY FREDDIE MAC INFORMATION FOR DISCUSSION PURPOSES - DO NOT COPY OR REDISTRIBUTE

Student Loan Demographics Most individuals in the credit visible population have no loans. Older millennials have the largest percentage of student loans above $10,000. CONFIDENTIAL Note: Credit Bureau data Sep 2016 CONFIDENTIAL - PROPRIETARY FREDDIE MAC INFORMATION FOR DISCUSSION PURPOSES - DO NOT COPY OR REDISTRIBUTE

Millennial Student Loan Debt The median student loan debt for millennials is $15,000. 20% of older millennials with loans have more than $45,000. Source: Freddie Mac calculations using anonymized credit bureau data for Sep 2016 CONFIDENTIAL

How Much Does Student Loan Debt Matter for 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 home prices is associated with a 10 percentage point decrease in mortgage ownership rate. Source: Freddie Mac calculations using anonymized credit bureau data for Sep 2016. . Controlled for socio-economic characteristics, credit attributes and macroeconomic variables. CONFIDENTIAL CONFIDENTIAL - PROPRIETARY FREDDIE MAC INFORMATION FOR DISCUSSION PURPOSES - DO NOT COPY OR REDISTRIBUTE

How Many Are “Mortgage Ready”?   Total Population % “Mortgage Weak” 39 “Mortgage Ready” 35 Mortgage Owner 26 About a third of the “mortgage ready” group are likely to be homeowners. 92.4 Million “Mortgage Ready” Total Population 6.8 Million “Mortgage Ready” African American 22.5 Million “Mortgage Ready” Millennials 14.1 Million “Mortgage Ready” Hispanics Source: Freddie Mac calculations using anonymized credit bureau data for Sep 2016 CONFIDENTIAL CONFIDENTIAL - PROPRIETARY FREDDIE MAC INFORMATION FOR DISCUSSION PURPOSES - DO NOT COPY OR REDISTRIBUTE

What Is “Mortgage Ready”? Mortgage readiness – Based on research criteria not actual underwriting. “Mortgage Ready” FICO score greater than 620 and… Total Debt to Income (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 CONFIDENTIAL CONFIDENTIAL - PROPRIETARY FREDDIE MAC INFORMATION FOR DISCUSSION PURPOSES - DO NOT COPY OR REDISTRIBUTE

Where Are the “Mortgage Ready” - Are Those Locations Affordable? CONFIDENTIAL

Where Are the “Mortgage Ready” - Are Those Locations Affordable? The data shows good opportunities to source “Mortgage Ready” loans! CONFIDENTIAL Source: Freddie Mac calculations using anonymized credit bureau data for Sep 2016

Housing Stock - May 2018 In May 2018 there was an overall shortage of housing. Decrease in housing supply will increase home prices, further reducing affordability. CONFIDENTIAL *Based on data from Redfin.com for May 2018 to investigate housing stock. CONFIDENTIAL - PROPRIETARY FREDDIE MAC INFORMATION FOR DISCUSSION PURPOSES - DO NOT COPY OR REDISTRIBUTE

Housing Stock - July 2018 In July 2018, the housing shortage declined. CONFIDENTIAL *Based on data from Redfin.com for July 2018 to investigate housing stock.

Texas “Mortgage Ready” Locations United States Texas “Mortgage Ready” % 35 38 Single Family Affordability % 86 99 Condo Affordability % 95 Housing Stock 3.9 9.8 Note: The Housing Stock data is from Redfin.com for the month of July 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. CONFIDENTIAL

Austin “Mortgage Ready” Locations United States Austin “Mortgage Ready” % 35 34 Single Family Affordability % 86 95 Condo Affordability % 96 Housing Stock 3.9 3.5 Note: The Housing Stock data is from Redfin.com for the month of July 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. CONFIDENTIAL

Houston “Mortgage Ready” Locations United States Houston “Mortgage Ready” % 35 36 Single Family Affordability % 86 98 Condo Affordability % 95 99 Housing Stock 3.9 4.3 Note: The Housing Stock data is from Redfin.com for the month of July 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. CONFIDENTIAL

How Can Down Payment Assistance Help the “Mortgage Ready”? CONFIDENTIAL Source: Freddie Mac calculations using anonymized credit bureau data for Sep 2016. DPA income limits obtained from Down Payment Resource.

How Many Are “Mortgage Weak”?   Total Population % “Mortgage Weak” 39 “Mortgage Ready” 35 Mortgage Owner 26 104.8 Million “Mortgage Weak” Total Population 92.4 Million “Mortgage Ready” Total Population Source: Freddie Mac calculations using anonymized credit bureau data for Sep 2016 CONFIDENTIAL CONFIDENTIAL - PROPRIETARY FREDDIE MAC INFORMATION FOR DISCUSSION PURPOSES - DO NOT COPY OR REDISTRIBUTE

Commonalities of “Mortgage Weak” Population  Weak Credit Concerns Percent Count Severe Delinquency Measures: Bankruptcy, Foreclosure, Delinquency 120-180 13.4 14,030,650 D90 in Last 12 Months 43.3 45,394,400 D60 in Last 12 Months 1.1 1,101,850 DTI > 45 0.1 135,150 Thin File (2 or Fewer) 39.9 41,852,100 No FICO < 0.1 45,300 Otherwise Low FICO 2.1 2,228,700 Total Mortgage Ready Weak 100.0 104,788,150 57% of mortgage weak have had a recent severe delinquency. 40% of mortgage weak have thin files with no delinquencies. Source: Freddie Mac calculations using anonymized credit bureau data for Sep 2016 CONFIDENTIAL

“Mortgage Weak”…Opportunity to Get Them Ready? Thin Files 40% of “mortgage weak” Have no severe delinquencies A DTI less than 45 No credit score This is an Opportunity! Teach credit, use as a tool Bank statements Credit risk alternatives Delinquencies 13% have a bankruptcy, foreclosure, or recent severe delinquency Another 43% have a 60- or 90- day delinquency CONFIDENTIAL Source: Freddie Mac calculations using anonymized credit bureau data for Sep 2016

Affordable Lending Analytics and Research Director Questions? Cindy Waldron Affordable Lending Analytics and Research Director Cynthia.Waldron@freddiemac.com