1. Future Borrowers: Challenges and Opportunities
2018 TALHFA ANNUAL MEETING September 11, 2018
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2. Agenda Comparative Demographics Student Loan Debt
“Mortgage Ready” Perspective
Affordability
“Mortgage Weak” Perspective
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3. 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.
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4. 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
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5. 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
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6. 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 Controlled for socio-economic characteristics, credit attributes and macroeconomic variables.
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7. 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
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8. 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 ( 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 ( DPD) in the past 12 months
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9. Where Are the “Mortgage Ready” - Are Those Locations Affordable?
CONFIDENTIAL

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

11. 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.
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12. 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.

13. 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 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.
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14. 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 Industry rule of thumb is if inventory/sales < 6 then housing is tight. Credit Bureau data for Sep to investigate mortgage ready. Calculations based on 10% down, 4% interest rate, 30 year mortgage and Freddie’s House Value estimator.
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15. 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 Industry rule of thumb is if inventory/sales < 6 then housing is tight. Credit Bureau data for Sep to investigate mortgage ready. Calculations based on 10% down, 4% interest rate, 30 year mortgage and Freddie’s House Value estimator.
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16. How Can Down Payment Assistance Help the “Mortgage Ready”?
CONFIDENTIAL
Source: Freddie Mac calculations using anonymized credit bureau data for Sep DPA income limits obtained from Down Payment Resource.

17. 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
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18. Commonalities of “Mortgage Weak” Population
 Weak Credit Concerns
Percent
Count
Severe Delinquency Measures:
Bankruptcy, Foreclosure, Delinquency
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

19. “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

20. Affordable Lending Analytics and Research Director
Questions?
Cindy Waldron
Affordable Lending Analytics and Research Director