ACCESS TO CREDIT FORUM - fhact50.orgfhact50.org/wp-content/uploads/2018/11/ACCESS-TO... · credit FICO, LTV and DTI across channels 700 710 720 730 740 750 760 770 780 v-13 14 14

ACCESS TO CREDIT FORUM

Tuesday, April 3, 2018

Marriott Marquis | Washington, DC

Lisa Rice, President & CEO

National Fair Housing Alliance

@NatFairHouse

Evidence for Expanding

Access to Credit

NFHA National Access to

Credit Forum

Washington, DC

April 3, 2018

Excessively Tight Credit is Keeping Many Credit Worthy Individuals out of Homeownership

3

Cumulative missing loans, 2009-2015: 6.3 million and growing

Why: zero default risk tolerance 2001-2003: reasonable lending standards

All product risk has been eliminated

Tight borrower underwriting risk profile requirements (credit score, income, etc.)

Today’s loans outperform by historical

standards. There is room to expand.

3

Default rates for loans with FICO < 700 and 80-90 LTV

0%

5%

10%

15%

20%

25%

30%

35%

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

1999-2003

2004

2005

2006

2007

2008

2009-2010

2011-3Q16

Year

Source: Fannie Mae Single Family Loan Level Credit Data.

Barriers to Homeownership PersistSavings/Down Payment: consumers often lack awareness of low down payment options

• 53 percent of renters say they rent because they can’t afford a down payment- more than any other reason

• Only 19 percent of borrowers are aware of low down payment options• High rents make it difficult to save, low interest rates make it hard for basic savings to grow

Credit: access is tight by historical standards

• The median FICO score has drifted up 20 points over the past decade• Both the FHA and VA serve more borrowers at the lower end of the spectrum

Income: stagnant wages and variability in income sources hasn’t caught up to current underwriting

• Rents growing faster than incomes

Affordability: home price appreciation and rising interest rates will cause affordability to decline

• If interest rates rise to 5.5 percent, the share of median income devoted to a mortgage payment will surpass the 2001-03 average

Language: Limited English proficiency• If we control for other factors that influence homeownership (e.g., income, age, and race),

neighborhoods with the highest concentrations of LEP residents have homeownership rates 5 percentage points lower than rates in neighborhoods with the median concentration of LEP residents

Sources: Laurie Goodman et al., (2017) Barriers to Accessing Homeownership: Down Payment, Credit, and Affordability. https://www.urban.org/sites/default/files/publication/94801/barriers_to_accessing_homeownership.pdfLaurie Goodman, Ed Golding, Sarah Strochak (2018) Is Limited English Proficiency a Barrier to Homeownership?https://www.urban.org/urban-wire/new-evidence-shows-limited-english-proficiency-barrier-homeownership 4

https://www.urban.org/sites/default/files/publication/94801/barriers_to_accessing_homeownership.pdf

https://www.urban.org/urban-wire/new-evidence-shows-limited-english-proficiency-barrier-homeownership

Blacks experiencing slowest recovery, losing all

homeownership gains made over last 50 years.No major US city has come even

close to closing the gap between

black and white homeownership.

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

Black White Hispanic Others

1970-2000 2000-2016

Percentage-point change in homeownership rate

All gains in black homeownership

since the Fair Housing Act have

been erased since 2000

Source: US Census Bureau, American Community Survey, and Urban Institute.

Source: American Community Survey and Urban Institute.Note: Data as of 2016.

5

Government channels have provided expanded

access to credit with FHA and VA lending

1% 2% 4%7%

35%

50%

17% 18% 18% 15%

24%

8%12% 11% 11% 11%

29% 26%

<640 640–660 660–680 680–700 700–760 ≥760

GSE FHA VA

Credit score

Agency Credit Distributions

6

55%

40%

0%5%2%

12%

85%

1%4%14%

5%

77%

≤80% 80–95% 95–96.5% >96.5%

GSE FHA VA

LTV at origination

Agency Loan-to-Value Ratio Distributions

Source: eMBS and Urban Institute.Note: Based on purchase originations.

Nonbanks playing a key role in opening up access to

credit FICO, LTV and DTI across channels

700

710

720

730

740

750

760

770

780

No

v-1

3

Mar

-14

Jul-

14

No

v-1

4

Mar

-15

Jul-

15

No

v-1

5

Mar

-16

Jul-

16

No

v-1

6

Mar

-17

Jul-

17

No

v-1

7

All Median FICO Bank Median FICO

Nonbank Median FICO

GSE FICO: Bank vs. Nonbank

66

68

70

72

74

76

78

80

82

84

86

88

90

No

v-1

3

Mar

-14

Jul-

14

No

v-1

4

Mar

-15

Jul-

15

No

v-1

5

Mar

-16

Jul-

16

No

v-1

6

Mar

-17

Jul-

17

No

v-1

7

All Median LTV

Bank Median LTV

Nonbank Median LTV

GSE LTV: Bank vs. Nonbank

30

32

34

36

38

40

42

No

v-1

3

Mar

-14

Jul-

14

No

v-1

4

Mar

-15

Jul-

15

No

v-1

5

Mar

-16

Jul-

16

No

v-1

6

Mar

-17

Jul-

17

No

v-1

7

All Median DTI

Bank Median DTI

Nonbank Median DTI

GSE DTI: Bank vs. Nonbank

Source: eMBS and Urban Institute.Note: Based on purchase originations.

LTV

≤ 80 80-95 > 95

FICO

≤ 700 6.2 10.7 11.7

700-750 2.0 4.5 5.4

> 750 0.8 2.4 3.5

≤ 30 30-45 > 45

10.5 10.7 11.1

DTI Breakdown: FICO ≤ 700 and LTV 80-95

LTV

≤ 80 80-95 > 95

FICO

≤ 700 26.0 33.7 38.5

700-750 13.4 20.4 21.5

> 750 5.3 11.6 13.8

≤ 30 30-45 > 45

25.6 32.8 39.5

DTI Breakdown: FICO ≤ 700 and LTV 80-95

2007

LTV

≤ 80 80-95 > 95

FICO

≤ 700 4.6 4.8 3.2

700-750 1.5 2.0 2.3

> 750 0.4 0.8 1.0

≤ 30 30-45 > 45

1.2 2.4 1.1

DTI Breakdown: FICO > 700 and ≤ 750,

LTV 80-95

2011

2002

How predictive is DTI? Delinquency rates by year of origination

and credit characteristics

Source: Fannie Mae and Freddie Mac Single Family Loan-Level Credit Data8

11

The Evidence for Expanding Access to Credit

Cheryl Young,Senior Economist

Trulia

22

CONSUMER BRANDS

BUSINESS BRANDS

3

FinancialServices

Health Care

HealthyFood

Active Life

Research Focus: Where You Live Matters

4

Mapping and Measuring Proximityto Financial Services

Metros:● Atlanta● Detroit● Houston● Oakland

Traditional Financial Services:● Banks● Credit Unions● Mortgage Lenders

Alternative Financial Services:● Check-Cashing / Pay-Day

Loans ● Debt Relief Services● Installment Loans● Title Loans

55

Analysis

6

Majority-minority census tracts across Atlanta, Houston, Oakland and Detroit have roughly 33% fewer traditional banking establishments than majority-white tracts.

Traditional Financial Services, Findings Across All Metros

Suggest we add labels on each bar chart

Traditional Financial Service Establishments Per 10,000 People

7

Houston has the largest disparity in traditional financial service establishments between majority-minority and majority-white census tracts.

Traditional Financial Services, Findings by Metro

* Difference is not statistically significant.

Traditional Financial Service Establishments Per 10,000 People, by Metro

8

Traditional Financial Services, Findings by Census Tract Type

The extent of racial disadvantage in terms of proximity to traditional financial services varies by metro; in Houston, majority-black tracts are the most disadvantaged. In Detroit, it’s majority-Hispanic.

Traditional Financial Services Establishments Per 10,000 People, by Census Tract Type

9

Alternative Financial Services, Findings Across All Metros

There are twice as many alternative banking service establishments in majority-minority census tracts than in majority-white census tracts.

Alternative Financial Services Establishments Per 10,000 People

10

Alternative Financial Services, Findings by Metro

Suggest we add labels on each bar chart

The largest disparity is in Oakland, where there are 2.3 times as many alternative financial service providers in majority-minority tracts than white tracts.

Alternative Financial Services EstablishmentsPer 10,000 People, by Metro

11

Alternative Financial Services, Findings by Census Tract Type

Across all four metros, majority-white census tracts have significantly fewer alternative financial service establishments than majority-black or Hispanic tracts.

Alternative Financial Services EstablishmentsPer 10,000 People, by Census Tract Type

12

Key Takeaway: Where you live matters.

1313

Thank you.

Modernizing FHA to Improve

Consumer Access

Laurie Goodman

Co-Director, Housing Finance Policy

Center

Urban Institute

National Access to Credit

Forum

Washington, DC

April 3, 2018

Originators charge more for weaker borrowers; even

though FHA does not do risk-based pricing

3.0

3.2

3.4

3.6

3.8

4.0

4.2

4.4

4.6

4.8

5.0< 640 640 - <660 660 - <680 680 - <700

700 - <760 ≥ 760 All

Interest Rate

Source: eMBS and Urban Institute.

Cost of Servicing

3

$59 $77 $90 $96 $114 $156 $156 $181 $163

$482

$704

$911

$1,246

$2,009

$2,358

$1,965

$2,386

$2,113

2008 2009 2010 2011 2012 2013 2014 2015 2016

Performing Nonperforming

• Servicing nonperforming loans is much more expensive than servicing performing

loans.

• FHA servicing is still more expensive; servicing FHA nonperforming loans is 3 times as

expensive as servicing GSE nonperforming loans.

Source: Mortgage Bankers Association Servicing Operations and Forum and Urban Institute.

Housing Counseling Facilitates LMI Lending

Overcoming the Cost of OriginationUsing Housing Counselors

Reducing Cost of LMI Originations

• Cost of Origination has risen by $3,000 since 2008

• Effectively Using Housing Counseling Saves Money in 4 ways

• UnidosUS has models that links together our network allowing us to

increased counseling capacity and market reach

• Layering modes of counseling to reduce cost and increase effectiveness of

communication.

Spreading the Aspiration ofOwning Home

Communities of color and LMI families generally have lost wealth since the crisis – makes families cautious.

There is distrust of messengers around homeownership.

Many prime lenders have reduced their focused in LMI markets as the segments revenue potential has significantly decreased.

Counseling can help in raising aspirations for homeownership and its potential for wealth promotion in our communities.

‏ Access to Homeownership Supported By MI

We Help People Buy a House, and Keep it Their Home

Forty Percent With Incomes Less Than $75,000‏

More Than 50% Are First Time Homebuyers‏

Accessible Through Prudent Low Down Payment Lending with MI‏

Support Access By Alignment to GSE Programs, Education, and Training‏

1

0

50,000

100,000

150,000

200,000

250,000

4Q16 1Q17 2Q17 3Q17

MI helped nearly860,000 HOMEOWNERS purchase or refinance

a mortgage in the past year

Source: USMI Member Companies

‏ Improve Access Through Fee Re-Evaluation

0

20

40

60

80

2007 2009 2011 2013 2015 2017

Annualized Fee Example680 Credit Score / 90 LTV

Annual Fee Upfront Fee Adverse Market

Credit Score

LT

V

2We Help People Buy a House, and Keep it Their Home

Fees Impact Access And Limit Choice‏

Unchanged View of Remote Exposure Since Crisis‏

Recommend Re-evaluation To Increase Access to Efficient Execution‏

GSE/MI Eligibility Matrix

Cells Impacted by Fees

Borrowers MutualInsurance Fund

Richard Cooperstein

Access to Credit ForumNational Fair Housing AllianceWashington DC

April 3, 2018

© 2018. Andrew Davidson & Co., Inc. All Rights Reserved

What’s the Goal: Really?

LIQUIDITY

CREDITACCESS

WEALTH


So What’s Better?

75 new owners & 5 lose their homes OR 10,000 new owners &

2000 lose their homes

000’s new owners AND < 10% lose their homes

3% Down OR 2.5% Reserves

SO…


The Groundwork

1. Educatea) Get the under-banked into the system

b) Get merchants to report their payments

2. Data Accessa) Build better scores for under-banked and

under-served populations and markets• FICO XD, Vantage 4.0, Finicity, etc.

b) A data utility with historic performance including new and old scores


Borrowers Mutual Insurance Fund

WHAT: Funds for short-term income interruptions and major maintenance items

WHO: Under-served populations & markets

WHY: Keep those with fragile liquidity in homes

HOW: 2% borrower reserves instead of 3% down + 0.5% from the GSEs: from 10 bps Guar. Fee on all loans

WHERE: Administered by: servicers, Board of non-profits and the GSEs?


Outcomes

RISK: Might be lower than low down-payments

FUNDING: 80% by the borrowers themselves

EFFICIENCY: Mutual structure diversifies risk and extends coverage (4%? per borrower)

FOCUS: The key risk facing new buyers: volatility

ALIGNMENT: Targeted borrowers, GSEs, Budget

© 2018 CoreLogic, Inc. All Rights Reserved. Proprietary & Confidential. One CoreLogic

Evidence for

Expanding

Access to

Credit

April 03, 2018

1

NFHA

© 2018 CoreLogic, Inc. All Rights Reserved. Proprietary & Confidential. One CoreLogic 2

Source: CoreLogic

Home Purchase Lending to Low Credit Score

Borrowers Collapsed and Has Not Recovered

0%

5%

10%

15%

20%

25%

30%

35%Ja

n-9

6

De

c-9

6

No

v-9

7

Oct-

98

Se

p-9

9

Au

g-0

0

Ju

l-0

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Ma

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3

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Ja

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Nov-0

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Oct-

09

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Jun-1

3

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Jan-1

8

Sh

are

of P

urc

ha

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gin

atio

ns to

< 6

40

Cre

dit S

co

re B

orr

ow

ers


> 6%

4% - 6%

2% - 4%

< 2%

Low Credit Purchase Lending Lowest in High Cost MarketsShare of Purchase Loans with Credit Scores < 640


Source: CoreLogic

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

500 550 600 650 700 750 800 850

Purchase Credit Score

2007

Originations

Applications

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

500 550 600 650 700 750 800 850

Purchase Credit Score

2017

Originations

Applications

Collapse in Credit Scores Due More to Demand Not Supply


Source: CoreLogic

Market is Producing a Deficit of 130,000 Low Income Loans Per YearLow-to-Moderate Area Share of Purchase Loans

14%

15%

16%

17%

18%

19%

20%

21%

22%

23%

24%

3 Percentage Points

Below Normal


Source: CoreLogic

Market is Producing a Deficit of 250,000 Minority Loans Per YearMinority Area Share of Purchase Loans Remains Low

14%

16%

18%

20%

22%

24%

26%

28%

30%

7 Percentage Points

Below Normal


Affordability Gap is Rapidly RisingSupply Gap Between Entry Home Prices and Luxury Home Prices Rapidly Widening

Source: CoreLogic, Home Price Index

100

140

180

220

260Ja

n-0

0

Oct-

00

Ju

l-0

1

Ap

r-0

2

Ja

n-0

3

Oct-

03

Ju

l-0

4

Ap

r-0

5

Ja

n-0

6

Oct-

06

Ju

l-0

7

Ap

r-0

8

Ja

n-0

9

Oct-

09

Ju

l-1

0

Ap

r-1

1

Ja

n-1

2

Oct-

12

Ju

l-1

3

Ap

r-1

4

Ja

n-1

5

Oct-

15

Ju

l-1

6

Ap

r-1

7

Ja

n-1

8

Entry Home

Price Index

Luxury Home

Price Index


Where to find more information

Look for regular updates to our housing forecast,

commentary and data at

https://www.corelogic.com/insights-index.aspx

@CoreLogicEcon

@TheSamKhater

The views, opinions, forecasts and estimates herein are those of the CoreLogic Office of the Chief Economist, are subject

to change without notice and do not necessarily reflect the position of CoreLogic or its management. The Office of the

Chief Economist makes every effort to provide accurate and reliable information, however, it does not guarantee

accuracy, completeness, timeliness or suitability for any particular purpose.

CORELOGIC and the CoreLogic logo are trademarks of CoreLogic, Inc. and/or its subsidiaries.

https://www.corelogic.com/insights-index.aspx

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