Sustainable Homeownership
Donna Greene- Regional Diverse Segments Manager
Delaware Governor Housing Conference
October 7, 2014
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
First-time homebuyers
Understanding the segment and their financing needs
2
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
First-time homebuyers
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%
NAR - FTHB Share of all Home Buyers2
47%
42%
40%
40%
40%
36%
2001
2003
2004
2005
2. NAR. Profile of Home Buyers and Sellers, 2012
2006
39%
2007
50%
41%
37%
2008
2009
2010
2011
39%
2012
4
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.
•
•
•
2013 : 5 mm more at 63 mm
2018 : 8 mm more at 84 mm
2023 : 9 mm more at 85 mm
Millions
Population Projections Age 20-44
Baby Boomers and Millennials
90
76
80
70
60
85
84
58
76
63
50
40
30
20
10
0
Source: U.S. Census Data
1980 | 2013
1985 | 2018
Age 20-34
Age 21-39
Baby Boomers
1990 | 2023
Age 26-44
Millenials
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Millennial first-time homebuyers
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.
The Changing Life Path of Consumers
Traditional
linear
lifestage
trajectory
Possible
Millennial
Trajectories
Get married
Live with
parents
Get an
education
Have
children
Start career
Children
leave home
Buy home
Get an
education
Live with
parents
Move in
with friends
Travel
abroad
Move back
home
Cohabit
with
partner
Buy home
Start career
Get married
Cohabit
with
partner
Have
children
Go back to
education
Change
career
Get
divorced
Sell home
Source: Fluidity as the New Foundational Brand Principle for
Millennials, The Futures Company, Spring 2010
Older kids
leave home
More
additions
to family
Look for
new home
What are the challenges of first-time
homebuyers?
Need money
for a down
payment
Limited income
and/or assets
Limited or no
credit history
Finding
properties in
their price
range
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Poor credit
history
Products and programs that meet first-time homebuyer needs
Product/
Program
Key features
FTHB needs met
FHA
 3.5% minimum down payment
 Limited funds for
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
 Limited credit
history
 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.
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
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 Limited funds for
down payment
 Limited credit
history
Products and programs that meet first-time homebuyer needs
Product/
Program
Key features
FTHB needs met
Purchase &
RenovateSM
program
 Loan amount based on the appraised after-improved value of the home
 Limited funds for
down payment
 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
 Older homes and
foreclosure
properties that are
more likely to be
listed within a FTHBs
price range
 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.
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%
Home
OpportunitiesSM
program





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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 funds for
down payment
 Limited credit
history
Products and programs that meet first-time homebuyer needs
Product/
Program
Key features
FTHB 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
 Limited funds for down
payment
 Homebuyer education programs
 Limited credit usage
 Low down payments - LTV up to 98%
 Unfamiliar with home
financing process
 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
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
 Assist in qualifying
homebuyers
 Lower interest rates and/or down payment and closing costs assistance
 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.
 Limited assets
 With a down payment of $100 (applies only if FHA financing is used)
 Non-traditional credit sources allowed
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 Limited funds for down
payment
 Limited credit history
Wells Fargo Home Mortgage’s commitment to
first-time homebuyers
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 FirstHomeSM – Online education program

The Wells Fargo Home Lending Learning and Planning Center –
online resources center

My Home Roadmap – aids borrower in becoming mortgage ready
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My FirstHomeSM education
A free, online educational program:

Designed to help first-time and readyagain 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
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Wells Fargo Home Lending Learning and Planning
Center
A website experience that blazes a clear path from
interest in buying a home through closing and
beyond:

Resonates with today’s researchoriented 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
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Tools and resources to help first-time
homebuyers
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
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Financial Reform
Key terms: QM/Non-QM and Ability to Repay (ATR)
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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.
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.
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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.
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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)
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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.
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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)
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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.
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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
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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%).
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%
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How can you help keep the loan process moving?
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.
Wells Fargo Home Mortgage has several
tools available to help your buyers
throughout the mortgage process.
 My FirstHomeSM
 My Home RoadmapSM service
 The Wells Fargo Home Lending Learning
and Planning Center
 PriorityBuyer® preapprovals
 The Home Financing Process Checklist
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Wells Fargo remains focused on helping all of our
customers succeed financially while complying with
the changes that affect the home lending business.
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 399801. 107189 12/13
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