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NationalDevelopmentCouncil_24Jan12_Fin of 40 Craig Nickerson, Rob Grossinger, Jennie, Hunter Kurtz, Matt Callahan, John Laswick, David

Noguera, Audience Members

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Craig Nickerson: Hello, everybody. Welcome to the webinar on Deeper Dive on Mortgage Financing Tips. I'm joined today by Rob Grossinger, who is – heads up community stabilization for the Enterprise Community Partners, and also by our friends in HUD Community Planning and Development, who oversee the Neighborhood Stabilization Program. I think John Laswick, David Noguera, and Hunter Kurtz are all with us, so thank you for joining us and for all your support.

Jennie, why don't we move into the – into the presentation here?

We see the names, and we'll just move on to kind of a reminder on how to ask the questions. This is one of three sessions that we're conducting, HUD-sponsored sessions on financing. The first one was last week on some of the basics around lessons learned at some mortgage financing roundtables we held last summer. We'll talk a little bit more about that.

Today, we're going to do a deeper drive on some of the key

mortgage financing tips. And then on February 2nd, we'll be talking about interim financing, financing that's used to help facilitate or leverage private capital for acquisition renovation, the short-term financing you need to redevelop and re-convey property.

So what are we going to cover today? We're going to cover four

primary topics. First, we're going to discuss how the design of soft second programs can really affect the mortgage credit that we're seeking for our borrowers. We found through the roundtables this was a very important topic, and one of great frustration.

Secondly, we're going to talk about some of the key elements of

the conventional conforming market and also the FHA mortgage products and compare them, be able to help you determine for your borrowers when one is better than the other. There's no one answer there. It really depends on a number of factors.

Third, we'll determine which products work best given different

borrower characteristics, which scenarios would largely influence the kind of product that you're seeking for your home buyers.

And then lastly, we'll talk about some strategies to increase

participation by both the national and regional mortgage lenders, and even community lenders within your community related to NSP.




Now I'm going to go through the next few slides rather quickly, because I have to suspect that a good number of you attended last week's session, but this is just a refresher and intended to really bring the others up to speed here on what did happen last summer. HUD had requested that Enterprise Community Partners and the National Community Stabilization Trust lead a series of discussions around the country on what's working and not working with mortgage lending in NSP markets. They heard loud and clearly from you that there were a lot of difficulties in helping obtain mortgage financing for your borrowers, particularly when you spent a lot of time and effort finding the properties and accessing them, purchasing them from financial institutions, then renovating them, only to find out mortgage capital was so tight.

So we conducted these six sessions. You can see the locations,

Chicago, Orlando, Los Angeles, Sacramento, Newark, and Atlanta. In each of those sessions we had typically five or six, maybe seven lender representatives, always had at least Fannie or Freddie at the table, some large lenders, national lenders, like Bank of America, Wells, Chase, Citi, and we'd have some regional or local players as well. And then the reminder of the 20 or 25 attendees were NSP grantees and their sub-recipients.

It really created a small, intimate conversation about what's

working and not working, and I think we came up with some important takeaways. We'll mention five of them here briefly.

First, and this will be no surprise to you, securing mortgage

financing from prospective buyers was a daunting challenge. In fact, in a – in both those roundtables as well as an assessment we did that preceded the roundtable, 75 percent of the NSP respondents said it was a big, big problem.

Secondly, we heard that tighter credit standards in the wake of the

housing crisis has become in their eyes the biggest obstacle to success. That – 57 percent said low credit scores were a problem. Another 52 percent said poor credit histories, bankruptcies, recent foreclosures were a problem. Another 32 percent talked about the fact that property values were still declining and that was a problem. So certainly credit was top of the list of problems.

Thirdly, as we mentioned, soft seconds, subordinate financing

structures created a lot of at least delay if not preventing a lot of deals from going forward. A lot of the financial institutions have become more cautious in looking at the subordinate financing structures. Rob will speak to that in a minute.




Fourth – we can go to the next page, Jennie – we found that

appraise – this was a real takeaway, a surprise to me, at least, that perhaps in – more than any other factor other than credit, we heard from grantees that low appraisals or inaccurate appraisals or using inappropriate comps were a major problem, and were precluding borrowers from being able to quality for a mortgage.

And then lastly, sort of a pervasive misinformation among housing

industry partners on what is NSP, how does it really work. You know, we needed to convert lenders and others into understanding these are markets of opportunity, not distressed markets where risk is higher.

So what about today's landscape? You know, there are fewer

mortgage originators. We literally have three of our top lenders, financial institutions in this country, Bank of America, Wells Fargo, and Chase, that originate more than half of all mortgage, although that is changing. We've seen a surge in the last nine months where a lot of other lenders, regional lenders, are really stepping up and providing some responsive mortgage products across the board.

But today's landscape is also marked by a resurgence of FHA.

There was a time back in 2005, 2006, where FHA was about 4 percent of the marketplace, and now they're more than – they're about 30 percent of the marketplace, and more than half of all first time homebuyer mortgages are being originated with FHA insurance.

This is also a market – if you go back just a minute. There you go.

It's also a time when there's a sort of reawakening at the GSEs to a conforming marketplace. Without the existence of subprime mortgages, we are seeing a sort of back to basics from the GSEs, Fannie and Freddie, trying to provide more liquidity, stability, and affordability in the marketplace, although perhaps with a little bit more of one hand tied behind their back, given the current situation with the GSEs.

Thirdly, underwriting fundamentals are just – we're back to the

fundamentals and we're back to really tight underwriting standards. Frankly, we're seeing that pendulum swing way in the opposite direction of where we are back in – prior to the housing implosion.

And lastly and importantly, and we'll come back to this point, the

emergence of some very interesting new portfolio products being




originated by lenders specifically for neighborhood stabilization purposes.

Okay. And this just sort of reminds us all of what those three Cs

are that we learned many years ago. It is back to the basics, so we need to be thinking about credit, particularly the impact that tighter credit scores will have on qualifying, and that's particularly the case in the conventional mortgage market. We'll be relying heavily on the automated underwriting tools that Fannie and Freddie use and that FHA use, Loan Prospector for Freddie, Desktop Underwriter for Fannie Mae.

And unfortunately, less reliance on compensating factors, and by

that what I mean is because most loans pass through an automated underwriting system to begin with, it's going to really require that loans be pulled out of that system when they don't immediately qualify and look at them from a manual underwriting basis, and look at ways that we can compensate for the factors that are otherwise perceived as high risk. Well, we'll explain that in more detail in a little bit here.

The other two factors you're familiar with, capacity and collateral.

With capacity, debt-to-income ratios have tightened. We were getting up in excess of 50, 55, 60 percent total debt-to-income. We're going to see those down around the mid-40s now, and that has significant implications when it comes to soft seconds, particularly how you apply those soft seconds, because frankly, very easily you could be solving for debt-to-income and create an issue on loan-to-value.

And then lastly on this slide I think it's important to note that more

than ever, having some borrower skin in the game, some borrow coming from them, is always important to helping qualify borrowers.

And I guess this is a me too, Rob. So lastly, with NSP funding

flexibility, there are a number of programs that can help here. But it's key here as we go forward through the rest of this presentation, you think about what the – what these obstacles are that we're trying to overcome and look for solutions, whether it's the monthly carrying cost of that principle interest tax insurance, the lack of cash for closing and down payment, and certainly, as we talked about, the biggest barrier, impaired credit or the fact that there's been some recent foreclosure or bankruptcy that the borrower is living with.




So this might be a good time to just take a pit stop before I turn it over to Rob and see if there are any questions.

Jennie: We do have a few questions. The first one is you mentioned NSP

lender programs. Like who? Craig Nickerson: Well, I hate to delay the answer, but we're going to talk about some

of the portfolio products and some of the other products the primary lenders have here a little later in our presentation. Suffice to say that we're seeing both – a lot of the regional and community lenders started with some portfolio products that seem responsiveness, and now we're beginning to see some of the big national players also explore the possibility of a NSP type product as well.

Jennie: Okay. Also, I just want to do a quick reminder. To ask a verbal

question, please select the hand icon. You will be placed in a queue and I will identify you once your line has been unmuted. You can then ask your question. After the question has been asked, please deselect your hand icon. I'm not seeing any hands up, but I do have – I'm not sure if it's a question or a statement, but it's, "I'm working with Wells Fargo on a current NSP mortgage. It is taking them forever to approve the NSP program for this particular loan. It also took them forever to approve a first-time homebuyers' program that I run for this particular buyer as well."

[Crosstalk]

Craig Nickerson: Actually, I think that's a ideal sort of segue to Rob, who's going to

talk about soft seconds, and I guess the short answer is that this person is not alone. It's something that we're all experiencing in terms of slow processing and lenders trying to get their arms around what this new NSP is all about. Rob?

Rob Grossinger: Thanks, Craig. Jennie: I actually do have one hand raised. Sorry. Craig Nickerson: Go ahead, Jennie. Jennie: You've been unmuted. Audience Member: Yeah. Hi. My name is Dave ____ with the City of ____. I'm the

one that typed in the Wells Fargo question. Yeah. I mean, it was – we have an NSP buyer, a house, she's already been approved everything. Like I said, it just seems to be taking forever. One, we




have a homebuyers' – first-time homebuyers' program, where I give $8,000.00 towards the down payment. It took them forever to approve that. And then now that got all approved, they're ready to go with the mortgage, and then next thing you know, Wells Fargo needed to approve the NSP program, and that still hasn't happened.

We have to – we've had this person renting from somebody else

because they can't move into the house because of the delay. It just seems – I don't understand what's taking so long for them to – you know, I guess they're being very cautious about the way they're lending money, like you started to say.

Craig Nickerson: Yeah. I think one of the things that we discovered – this is Craig –

that we heard loud and clear from these roundtables is that many of the community lending staff, the loan processors, the intake representatives, even the underwriters, are not familiar with government programs, and certainly not familiar with NSP.

But there are people – what many of the lenders said is when that

happens, we need to know about it in our community development teams, and what we'll do is get in touch with those folks, explain what's going on, maybe allay some of their concerns. Frankly, a lot of these originators now are more cautious than ever. And then help them just kind of get over some of their hesitancy.

On this particular situation, if you would like to contact Rob or

myself after this – after this session, we'll deal with the specifics and give you the names of a couple of people you could call at Wells Fargo.

Audience Member: Great. Thank you. Thank you very much. I appreciate that. You

just – I don't know if it was, like you said, not an understanding of one, the NSP program, and two, the program we had was like, you know, it was – we – we're ____ hold third place mortgage, but yet it was just still like we're – had to jump through hoops just even to get them to approve our mortgage. But that would be fine.

Craig Nickerson: Great. Rob Grossinger: All right. So I think it's time for – this is Rob Grossinger, and it's

time for me to take over here. I'm going to – as I was listening to that last exchange, and thinking a little bit about what we've heard, and this is where Craig always gets nervous when he co-moderates things with me, I'm not going to go off-script, Craig. Don't worry about it.




But I am – I do want to hit a couple of highlights about things that make this more difficult than it should be. So let's start with this whole concept of NSP program mortgages, or NSP soft seconds, or NSP down payment systems. I could spend from today until the end of the week talking about how the structure of the major national financial institutions makes it very difficult for them to understand anything in specificity, and that things have to be done in sort of multiple executions over and over and over again, something that they can build into a understandable process for them, so that they're able to then move forward.

So I'm going to put this in the language of something that may

make sense to the lenders that you're working with. They may not understand the NSP program, but they do understand what a down payment assistance grant or loan is. And so the more you tie this to things that they understand, language they understand, and I think that came out very loud and clear when we did these roundtables around the country, is that even the use of particular words has different meanings to you as an NSP grantee, to the homebuyer, and to the lender. There are just different languages that go on. Different words have different – sort of instigate different thought processes and cause multiple problems.

So let's take a look at the soft second structures. And when we talk

about this, what we're really just saying is you may be choosing in your community to use your NSP money to somehow make that mortgage more affordable, whether it's increasing the amount of down payment that can go in to bring down the total principal amount that's borrowed, the different ways that Craig was listing before, you can use that.

The question is are you doing it – for what social purpose or what

public policy purpose? If you're doing it to simply help more borrowers become eligible to buy the house, then there's one approach that you may want to think about. If you're doing it to maintain affordability for the long run, to sort of create an affordable housing stock for an extended period of time, that has different implications. And the third is if you're doing it and you're trying to protect against any possible gain the homeowner can get from your largesse, so to speak, then you're going to be putting other restrictions on, which have even more unintended consequences. So you've got to think through your public policy, where you're coming from to start.

So most providers of NSP or any kind of down payment assistance

or principal reduction assistance or any of the kind of largesse




we're talking about put in some form of a recapture provision, because what they don't want the homeowner to do is flip the house, take advantage of that money, and walk away with it by selling the house, even just for the same amount they purchased it for, and being able to recapture that sort of extra grant money. So there'll be some form of if you sell either within this particular time or if you ever sell, there's a recapture of that assistance that's provided.

I'd ask you to think about how – you know, what sort of time

period you want, what sort of time period the first mortgage is. Try to line things up so that they work together hand in hand with respect to what you're providing and the other sources of funding that are coming into the mortgage. And try and remember what your real public policy purpose is and stick to that. Don't get sidetracked by things that all of a sudden you think, oh, it'd be nice if we could do this, or be nice if we could do that, because the more you lay on top of the requirements for this, the less likely it is any lender is going to want to come to the table with you and be a first lien lender while you're a second lien lender.

So the question is, under resale, if you look at that bullet point, you

know, if you want things to extend beyond the term of your assistance, or worse yet, and I say this not from a public policy standpoint but from an administrative standpoint, beyond any sort of sale or transfer, you're simply making this more difficult to execute. The one thing I will say that if you try and make that affordability requirement stay alive post-foreclosure, you'll never have a lender participate with you as a first lien lender. They need – when they take a property through foreclosure, they need to be able to sell it to whoever is willing to buy it, and they need to be able to sell it as quickly as possible.

So the more bells and whistles you put in, the slower the process is

going to go. That doesn't explain the prior statement about, you know, it's taking forever, but what I would ask is that you think about this. As you put your program together, you should be putting it together – now most of you – I'm hoping most of you on the call already have your programs put together, but if you have the capacity to change them or you're creating a new one now, sit down with the lenders you want to be part of your program and structure it with them. Don't try and structure and then say to them, "This is our program. You have to adapt." Big banks don't adapt. That's just the bottom line.




And so if you think they're going to adapt for you, whether you're representing the State of California, the City of Chicago, or the Town of Biloxi, Mississippi, they're not going to adapt. They can't. They are structured in a particular way to do what they do. They're going to want you to adapt to them, and as usual, the 600 pound gorilla in the room gets to call the shots.

So structure this in a way that the lenders you want – and if you

want to then rely on regional or even local banks, fine, but find those people that understand what you're structuring, so that you're not going buyer by buyer to them, saying, "All right, here's this buyer, Ms. Jones. I want you to approve this first-time homebuyer assistance I'm giving." But if you can say, "This is exactly the same way that we've laid out in the program you've already approved, we already sat down with you and you approved it," there should be no delays, because they're going to see the exact same paperwork and the same content of that paperwork that they saw in putting the program together.

There are – everything sort of works together, sometimes in

negative ways, sometimes in positive ways. When you add this money to be helpful to the homebuyer but you put a lien on the mortgage, you're adding to their combined – their CLTV, they're combined loan-to-value, and there's a limit on that as far as how high they'll go, even if your document states this is a non-amortizing loan, that it's forgiven in ten years. It doesn't make a bit of difference. A lien represents the loan, which represents the total of the loan, which can butt up against or exceed the combined loan to value that your lenders are willing to go for with a first lien loan.

So most importantly, and we stress this every time we talk,

whether it's in a regional roundtable, on one of these webinars, or just walking down the street, you have to conform to the secondary market requirements. If you want any lender who is going to be selling their loans into the secondary market, Freddie Mac or Fannie Mae, your requirements have to conform with their requirements, and they are very easy to find. I think – can we go to the next slide? Let's go one more.

Well, the – I thought we were going to put those into this deck, but

they're very easy to find by going to either Freddie Mac or Fannie Mae's website, and we will try and get something out, or Craig and I can get something out to tell you exactly where those soft second requirements are. And when I turn this back over to Craig, he may be even able to tell you off the top of his head. So it's very important to follow those.




So we're now into page – or slide 14. I just want to walk through

these questions, because they're not really questions. They're if you do this, okay, if you do that, no, not okay. They're posed in questions, but they really should have little skulls and crossbones after the ones where if you do that, there's no hope of ever working with a lender.

Again, CLTV, you don't want to go above five percent, because

most mortgage products aren't going to allow that. If your – if the money is coming not from you – I think this is probably moot for all of you on the call, but just make sure that the – whoever is providing this assistance represents something that the lender can be comfortable with, whether it's a governmental entity or a nonprofit or an employer. It's just – it's something they're much more comfortable with dealing with. You will never get your lien to be above in the pecking order the first lien of the first mortgage lender. It's – I don't think anyone even tries. I'm laying that out there, but just remember, that's just not going to happen.

The rest of these, instead of reading them one after another, which

can be kind of boring, understand that what these questions are telling you is if you've done this, you've probably violated the underwriting rules of the lender you're with, and almost any lender. You really have to structure your assistance in a way that there's no additional gain to you, there's no additional requirements beyond what any lender would allow, and it doesn't add to the combined loan to value.

So for example, if you're saying you're going to do a shared

appreciation where you're going to provide some assistance, and if they sell the property at a appreciated price, you're going to share some of that with the seller, you have to make sure that you're not trying to claim more than what your fair share is of the total value of the home. Negative amortization for all of you, it just means taking anything that you're deferring and rolling it into and adding to the principal. That's a no-no across the board, even for first lien lenders now in most situations.

So you really just want to be careful with all of these that you have

vetted them with the lenders you want to participate. We're finding that the most successful assistance programs, and again, I don't want to limit it to just NSP, because it's – there are state-run programs and municipal funded programs and even philanthropy will fund some of these sort of programs. The most successful the ones – are the ones that have sat down with the lenders they've




targeted in their community and said, "I'd like you to participate when we're making this assistance available. Here are the documents we plan to use. Please show them to your lawyers and let us know what you think."

Negotiate that ahead of time. Again, you don't have a tremendous

amount of negotiating power, because the lenders – the bigger the lender, the more stuck they are in their particular process. But there are some places in which you can make a viable argument about why you want to do something that they may be willing to say, "Okay, we haven't done that before but we'll do it now." Please sit down, go through that. If you come to them with a loan and say, "Oh, and by the way, here's the assistance we're giving and here's the documents for it," and they haven't seen it before, it's not only going to take a lot of time, if there's any deviation from the way they do things, it'll never get approved.

And I'm sounding draconian only because we've been hearing this

for years and years, and, you know, an ounce of prevention goes a long way. Getting it done on the front end and getting the approvals done on the front end with your targeted lenders makes you happy with your lenders and makes your lenders happy with you.

Slide – let's keep going, Jennie. One more. One more after that.

Okay. As I was saying before, any deed restrictions that you are trying to

keep in place post-foreclosure, no lender's going to accept that as a set of documents. We talked about shared equity. Combo programs are where you try and do, you know, multiple things. You try to accomplish something at resell and a recapture, but you're also trying to accomplish something else. Don't make it complicated. Keep it simple. I'm going to go to the next slide.

We keep hearing that in every political venue. It's the economy,

stupid. It's this, stupid. It's that. So in this case, simple, simple, simple. The more – the more bells and whistles, the less likely you're going to be successful, and all it's going to do is frustrate you, and then that's not fun. Nobody wants to be in that position.

So if – as – the very last bullet point, if you've already done this

with your HOME programs or your CDBG, that – they do understand that, and so the more – the similarity between not – the programs are not necessarily that similar, but your program should




be similar, because they can't – they are not good at – I shouldn't say they can't, but they're not good at reinventing the wheel.

Financial institutions, for whatever we want to say, have gotten so

big, right or wrong, that their processes are very difficult to ask them to make exceptions, to ask them to deal with your community differently than they do with the rest of the communities. You can get that with some of your local institutions, but their lending, their capital sources, are usually less. And you may be able to get it with some of your regional.

So I'm going to stop there and see if we have questions. Jennie: We do have a couple of questions. As a quick reminder, to ask a

verbal question, please select the hand icon. You'll be placed in a queue, and I will identify you once your line has been unmuted. Then you may ask your question. After your question has been asked, please deselect your hand icon.

We do have one question here that says, "I was a participant at the

Newark session where a draft overview for NSP 2 mortgages was distributed. Has this been made final? If so, how can we get a copy of it?"

Rob Grossinger: I will defer to Craig, since I didn't attend the Newark session. Craig Nickerson: Well, I did, and I even recall it, Rob, which is good these days. I

think we're referring to the mortgage guide. There was a draft of a mortgage – how do NSP grantees access mortgage credit for their borrowers, a guide of some 45 or so pages that was drafted in advance of the roundtables. And we then after the roundtables this past fall went back and edited the document, updated some of the material, and incorporated a lot of the interesting takeaways that we heard at the roundtables. That document now I think is within weeks of being available to the public, and I don't know if David or John want to speak to it, but I think that it'll be broadly disseminated by that time.

Jennie: Next question, for Wells Fargo, contact their SPA, Special

Programs Administration Department, and have your program approved beforehand, and it will expedite individual processing issues. The same goes for most banks.

Craig Nickerson: Okay.




Rob Grossinger: Yeah. And I appreciate that statement from Andrea, because otherwise I just would have given out Mussi Gabler's email and made her miserable.

Craig Nickerson: One thing that –

[Crosstalk] Craig Nickerson: Oh, go ahead, Jennie. Jennie: I'm sorry. Do you have thoughts on whether or not the Safe Act

has implications on nonprofit NSP grantees developers who are giving an NSP soft second?

Craig Nickerson: It – Rob, do you want to comment? Rob Grossinger: No. I don't have a feel for that one. Craig Nickerson: I don't think it does. You know, I think – Rob said this in his

remarks, but I really think that a lot of times we're making things more difficult than they need to be. The sort of checklist that Rob went through is actually from the Fannie Mae website, and I've found that in talking to financial institutions, the lenders on the ground, if you make it clear to them that you are in adhering – your soft second adheres, complies with either Fannie Mae's Community Seconds – Fannie Mae calls their guidelines Community Seconds, Freddie Mac calls theirs Affordable Seconds. If you tell the lender that these guideline – that your soft second meets the test of Fannie's Community Seconds and Freddie's Affordable Seconds, and I would believe in 99 percent of the cases it does, that gives them comfort.

That may discourage them from doing the sort of sausage-making

review through many channels of a large lending institution, because they know that that guideline has already been used by them endlessly for years as a safe harbor. And so I think that's key to this thing, that the GSEs are trying to make the soft second structure easier. We just have to have the primary lender connect the dots from your program to those guidelines.

Jennie: We also have a live question from Brenda. You're unmuted.

Please go ahead and ask your question. Audience Member: Good morning. This is Brenda with Affordable Housing

Clearinghouse in California. I just had a suggestion for the – for working with the lenders. We have found that it – we succeed




more when we have a lender participation or introduction to the program of those who want to participate. And if you go over the program with those who attend, you actually have a better success rate of processing your NSP funds, because if you keep the same folks on your roster that you work with, it makes the process a lot smoother.

Craig Nickerson: We couldn't agree more, Brenda. Jennie: We have a couple more questions. The first one is a statement, I

believe. "We are having our third meeting with our seven primary lenders and their respective local originators. Soft second design points will be extremely helpful to us."

Craig Nickerson: Okay. Well, I think these webinar decks are available after the

sessions, and I think you'll find in there a lot of the guidelines you want. Let me also – I don't want to belabor this point, because we have more to cover here in terms of the products themselves, but let me – Rob mentioned an email access that I might have, and I did dig it out while he was talking. To obtain Freddie Mac's Affordable Second guidelines, you would go to www.Freddiemac.com/sell, S-E-L-L, /expmkts, the abbreviation for expanding markets. E-X-P-M as in Michael, K-T-S/ – almost done – affsec, for Affordable Seconds. A-F-F-S-E-C. If you do that, you'll get all of their guidelines there in a simple framework.

For Fannie Mae, it's about the same length, but let me try it

quickly. www.efanniemae, E as in electronic, www.efanniemae.com/sf, as in single family, sf/mortgageproducts/pdf/cschecklist.pdf. Okay? That last part was C as in community, S as in seconds, checklist.pdf. All right?

Hunter Kurtz: Craig, this is Hunter real quick. I think we probably can get that

information posted on the slides so that – we can update the slides on the website and have that information on there.

Craig Nickerson: Awesome. Great. Great. Okay. Should we – Jennie: Actually, we have a couple more questions. "With regards to

Wells Fargo, I did go and have been dealing with the SPA Group, and that is where the hold-up is." I believe that's a follow-up from the previous question.

Craig Nickerson: Yeah. We're going to follow up – Rob and I will follow up with

the Wells Fargo team. You know, they have been – we've met with them any number of times around neighborhood stabilization.




They have created some new products that are very focused on neighborhood stabilization. And I think we just need to make them aware that there's some consternation out there among the grantees still.

Jennie: Okay. The last question, "Safe Act isn't causing a problem, but the

lack of final rules from CFPB on QRM and QM seems to be. Any thoughts?"

Craig Nickerson: Well, I mean, yes, the QRM stuff is huge, and it's sort of like a

black cloud that's hanging over all this. But I don't think you should expect any sort of clarity in the very near future. I know they have gone back to the drawing board and they are now rethinking the notion that any mortgage request that includes less than 20 percent down is somehow inherently a high risk loan.

I think we have – I think we have – and this is my term, not

HUD's. I think we've beaten them up enough that they're sensitive to that fact, and looking for a more surgical way to get at high risk, rather than just the LTV or the amount of borrower equity. It is something we're going to have to be diligent in watching, but I feel comfortable that there are structures in place that we'll avoid this being a real obstacle for us going ahead.

Shall we move into products? What we want to do in this next

segment is talk about some of the key mortgage products, maybe some that you're already familiar with, you give an update on them. And I want to acknowledge one other participant in this presentation here that I was negligent at the beginning in acknowledging, and that's Matt Callahan. Matt's based in California, in the LA market, specializes in neighborhood stabilization lending, and also specializes in first time home ownership lending, does a lot of FHA and conventional.

He was also one of our partners on these mortgage roundtables as

we went around and facilitated these discussions, so he has the benefit of having heard from a lot of grantees. And we – I asked him if he would join us in this discussion, and I'm going to ask him to add some real life perspective to some of the things that we're talking about here.

So we're going to talk about the conventional/conforming market.

That really is just the term often given to what Fannie Mae and Freddie Mac represent, the GSEs, Government Support Enterprises. We'll talk about FHA. And then as someone




requested earlier, we'll talk about some of the kinds of portfolio products we're beginning to see in the marketplace.

So first let's – Jennie, if you can move to the next slide here. Let's

talk a little bit about the conventional marketplace. It certainly has changed from five years ago. It is a much more cautious and methodical process than it used to be. But certainly the key automated underwriting systems are in place and are being used, and, you know, these are good tools. I must tell you that I think that both LP, Loan Prospector, and DU, Desktop Underwriter, do a wonderful job of quickly assessing layers of risk in determining what is an approval loan or not. That's the good news.

The bad news is given the unique circumstances of some of our

borrowers and some of the types of activities we're undertaking in NSP, sometimes that sort of one size fits all series of algorithms to determine acceptability of a mortgage just doesn't work as well. It's the extenuating circumstance that gets lost in the fray. And so we're working with the GSEs to make sure that they not only use these automated tools, but that we have manual overrides to look again at those borrowers when the AU system, the automated underwriting system, doesn't work the way it's intended. But they're good systems, and they've been refined over and over for the last, oh, gosh, 20 years.

PMI. We're not going to spend a lot of time talking about private

mortgage insurance here today, but it's important to remember that when you are doing conforming loans, and that loan to value exceeds 80 percent, the GSEs are required by law to have some form of credit enhancement, some sort – form of mortgage insurance. And frankly, I think the private mortgage insurers have been more in the bunker than anybody over the last few years. The good news is we're seeing the PMIs become financially stronger, come back into the mix. There was a time there a year ago where you would be hard-pressed to find an MI that was willing to insure anything with a LTV above 90 percent, and that's changing. We're back up to the 95 percent, and in some cases higher than that level now.

And I think it's important, because they play an important role in

this whole – this whole process. One little – one little sidebar here that we mentioned last week but I want to mention again is that private mortgage insurance, unlike FHA insurance, private mortgage insurance has been deductible on a homeowner's income tax. That started in 2006, and that was the case all the way through to the end of 2011. But that legislation was not renewed. It may




still be, but right now you cannot – the borrower cannot deduct the MI coverage.

And then of course the two products we're going to spend a little

time talking about here are Fannie Mae's MyCommunity Mortgage and Freddie Mac's Home Possible. These are the flagship programs for those two GSEs when it comes to affordable lending. They precede NSP, but they can very – I think very effectively sometimes meet the needs of your borrowers. So let's talk about those in a little bit more details.

Fannie's MyCommunity mortgage, and I'm going to ask Matt to

comment on both of these products in a minute. But the LTV can be as high as 95, and I think in some instances actually can even go up to 97 percent, including the financing of that MI we just talked about. There's not necessarily a minimum borrower contribution, but believe me, it is an important factor, and I would encourage you to have a borrower contribution to increase the likelihood of approval.

The combined long-to-value, the CLTV, by combined we're

referring to the first mortgage that would be the MyCommunity mortgage, as well as any other indebtedness, maybe your soft seconds and other forms of indebtedness, cannot exceed 103 percent. Sometimes that can go I think, Matt, as 105, but when you get above that, it's going to be tough. So you look for a LTV below 95 and a combined long to value hopefully no higher than 193 percent.

It's tough to pinpoint a credit score and say, "This is your

threshold." You'll see we put in parentheses there manual. With automated underwriting systems, with the Desktop Underwriter, you could find a MyCommunity that qualifies at 630, 640, maybe 620, because of the other contributing factors. Maybe there's a lower loan-to-value. Maybe you've provided a very deep soft second that makes it all possible.

So – but we do know this. When it does not get approved

officially, it's not an accept in Desktop Underwriter, the instructions are to use a minimum credit score of 660 when you are manually underwriting the loan. So it gives a little picture into what may lie ahead for your borrower.

No reserves are required on a one unit property. What do we mean

by reserves? Lenders will look at how much cash is available to that borrower in an account, in an identifiable account, to




document that if there's a rainy day problem, the heating system goes out, the roof starts leaking, that they have something to fall back upon.

With MyCommunity, on a single family loan there's no

requirement for reserves. There is a two-month reserve, which means two months' mortgage payments reserved, for a two to four-unit property. And then lastly, non-borrower down payment from a properly documented gift, grant, or Community Second is key to this, right? So if – in order to qualify for being a soft subsidy, you want to make sure it is a grant, a gift, or one of those Community Seconds that Rob walked us through before.

Let's compare that to Freddie here, and then I'd love to hear from

Matt on what his experience has been on the ground. Freddie's program, Home Possible, is very similar. LTV of up to 95 percent, including financed MI, but here's where it differs. Currently, the combined, the CLTV, is only up to 95 percent. Not 103, 95. So that means you're really going to have trouble applying your soft seconds to a Home Possible mortgage today, unless the LTV is much lower than 95, and your soft second is bringing it up to 95 percent. Big difference.

And again, there's no minimum borrower contribution, but you see

the asterisks there. We really think it's advisable. And similar to MyCommunity, I don't have to say it all, no reserves for one unit. Similar credit score threshold. Counseling is required for first-time homebuyers. That would be true for Fannie Mae's product as well.

So that's a quick snapshot on the two GSE products that are most

widely used for this purpose. Matt, you know, in some of the roundtables, I heard that there was difficulty in making a MyCommunity or Home Possible mortgage in this current environment. Has that been your experience?

Matt Callahan: No, it hasn't, Craig. And I would say the majority of the clients

that we're assisting with NSP or NSP type assistance programs, you know, especially where the LTV is going to be below – at or below 80 percent, these products are a perfect fit. You know, they're designed to accommodate community lending initiatives. And the other point I think it's important to – that may be what people think is not true, is that the overall pricing can be better. The overall cost to the consumer can be better than a so-called regular Fannie Mae or Freddie Mac loan, because if you have a lot of overlays and say lower credit scores or lower reserves or higher LTVs or what not, you're going to get a lot of hits on your final




pricing of that loan. Home Possible and MyCommunity mortgage eliminate almost all of those hits, and so your final pricing and cost can be much more favorable.

Craig Nickerson: Good. Good. Thank you. Let's talk about FHA here for a minute,

and then we'll compare FHA to some of these conventional products. I think you all know about FHA financing, a loan guaranteed by and conforms to the FHA requirements. Ginnie Mae is actually the secondary market buyer of these loans, but FHA is insurance. It is the equivalent of the private mortgage insurance we talked about before. But FHA creates the guidelines.

There's an up front mortgage insurance premium and a monthly

mortgage insurance premium paid on this, on those loans. They tend to be a little higher than the conventional mortgage insurance for the same level of coverage, and we'll talk about that in a minute. And we'll talk a little bit about the two primary FHA products that you would find your borrowers using, 203(b), it's sort of the baseline, most popular purchase mortgage structure, and then 203(k), the purchase-rehab loan.

So with the 203(b), minimum FICO again, it's hard to say

minimum. You'll see some literature that talks about being able to lend with a credit score into the 500s, but our experience is that the lenders are pretty uncomfortable underwriting anything with a minimum FICO below 620. The debt-to-income generally can go beyond the 45 percent with some compensating factors. The factors might be the nature of the debt they have, or the nature of why their credit score is lower than it might otherwise be.

LTV is 96.5 percent. That means a 3.5 percent down payment

from someone. And that down payment can be from the borrower, but it also can be from your grant or soft seconds, as long as it comes from a government or nonprofit entity working with the government. There are some – there are some frustrations out there around the slowness of the FHA home ownerships centers approving the nonprofit for that ability to provide the down payment assistance.

There's no post-closing reserve. We talked about reserves before.

No reserves required on a single family. And of course, the – a key difference here between – MIP standards for mortgage insurance premium. With a conventional mortgage, that mortgage insurance premium will go away, can go away, upon request, after the LTV is below 80 percent of the median. So if you've got a mortgage and with a soft second it's at an 85 percent loan-to-value,




and let's say after four years you've paid down enough principal that the value is now great enough that you're below 80 percent LTV, there's no requirement for that MI to continue. With FHA, it does continue for the life of the loan. An important little differentiation there.

Let's go on, and just talk a little bit about, you know, some other

key features here. Non-occupant co-signers are permitted. They're not permitted with the conventional/conforming markets, typically. There is allowance for the exclusion of deferred non-housing debt, such as student loans, which can be a big deal.

And really, FHA even to this day is more of a story loan. Those

extenuating circumstances we talked about, those compensating factors come into play here and it makes a big difference. So Matt, your experience with FHA, is it a more flexible tool, generally speaking, than –

Matt Callahan: Well, I think your final point, Craig, about being a story loan is

important. You know, if you have a scenario that makes sense and any reasonable person looking at it, it would make sense, but it doesn't fit the conforming lending guidelines, which tend to be more black or white, an FHA is going to be a good choice.

The only thing I was going to add in the points you make, Craig,

with regards to FICO credit scores, it's important to always keep in mind that we're talking about the middle FICO score, not the lowest or the highest, but the middle. So sometimes the borrower can come in and say, "Oh, I've got a 600 FICO score," and you ask them, "How do you know?" "Well, I checked it on MyFreeCreditReport.com," or something.

And you really need to get a Trimerge mortgage credit report and

see what that middle FICO score is, and often that can get your borrower approved.

Craig Nickerson: That's a good point. Good point. Let's go on to the comparison,

then, of the conventional and FHA, get a little clarity on where one works – whoops, I jumped ahead. No, that's okay. Please go to the next slide. I forgot we were going to cover 203(k) here.

A few words around 203(k). There's – I read recently that – some

impressive results, that 203(k) had doubled from – the volume has doubled from 2009 to 2010, and again from 2010 to 2011, which sounds very impressive. It's still a relatively modest number. I think it's somewhere around, at the end of 2010, there were 22,000




203(k) mortgages in America, and our need, of course, is well beyond a few thousand.

But this is an important product, and it is of growing use in NSP

markets. And I want to differentiate between the standard 203(k) classic and the new streamlined program. 203(k) is a 15 to 30 year purchase rehab mortgage, so it's a mortgage where you would buy the home and you would also incorporate the renovation costs into one single mortgage payment. You can finance significant renovation. I mean, it could be, you know, $30,000.00, $40,000.00, $50,000.00, $60,000.00, $70,000.00. There's a minimum of $5,000.00.

You can – and this is important. You can finance up to six months

of your principal interest tax insurance. So let's say you're living somewhere else while your home that you've just bought is being renovated. You can finance six months of that mortgage payment on your new home into the – into the long-term 30-year mortgage so that you're not caught paying a mortgage on two different properties while the renovation is occurring, a nice feature.

The total loan-to-value – I should use CLTV, combined long-to-

value, is the lesser of the purchase and rehab price cost, or 110 percent of the appraised after-rehab value. And I have to warn you, the costs associated with the 203(k) can be higher. It can be as much as three percent higher than a conventional mortgage without rehab.

Let's look at the streamlined. With the streamlined purchase and

rehab, it's a lot simpler, and I would encourage you, if you're going to go this route, if you're going to do a direct to homebuyer execution rather than use a turnkey developer approach, which is most commonly used, if you're doing a direct to homebuyer, use the streamlined approach. Don't go to the more cumbersome and older program. This is simpler, easier, cheaper.

Fifteen to 30 years, again. The rehab must be between $5,000.00

and $35,000.00, so it's more modest. You cannot finance that six months of PITI, but you also don't have to hire the architect and the consultants and have a HUD blessing and approval. And you must start the construction after approval of the loan and complete it within six months. But it is a – it is a more streamlined vehicle.

We'll answer your questions about this in a minute. Let's go to the

comparison here. Oh, we keep jumping ahead. Portfolio products. A number of you asked questions about portfolio products, and I




don't want to start doing infomercials for lenders, but there are a number of products that we saw through the roundtables and also some that we have been made aware of that are close to being announced that it's creating excitement for me, at least.

In the – one product we heard that was broadly being used in a

number of roundtables was one that US Bank has called the American Dream Product. It's a 97 LTV. There's no mortgage insurance on it. There's a requirement for a $1,000.00 borrower contribution. The rest of that three percent can come from other sources. And you could even build in some minor repairs into the project. So we thought that one was a worthy contribution.

Union Bank in California I know has a portfolio product that might

be applicable here. There's at least one of the top three or four lenders that is about to announce very shortly, I'd say within the next 30 to 45 days, a portfolio product for NSP that is also very flexible. It has no MI associated with it. I think it's also a 97 LTV, and I really can't say too much more about it, because it hasn't been officially announced. But another product that I think will be an important complement to the products that we talked about here today.

All of those – well, back one second, just that last bullet. Most all

of the common themes in these portfolio products are low borrower down payment, typically no private mortgage insurance, manually underwritten, it's not automated, and typically focus on community stabilization and have a counseling requirement built in. Okay.

So when does conventional make sense and when does FHA make

sense? I'm going to ask Matt to comment on this in a minute as well. But borrowers who have generally a better credit history for the minimum of FICO – it's always dangerous to cite a number here, but generally in the 660 or above, conventional is a good bet. Make sure if you're thinking of using MyCommunity or Home Possible that there's no bankruptcy, foreclosure, or other serious credit issue like that within the last four years.

It's important to look at a total debt-to-income that doesn't

generally exceed 45 percent, although sometimes you can get approval beyond that with automated underwriting. Generally think about a five percent down payment from that borrower or other soft sources. And you're going to have to document all of the sources of that borrower's income. That's a key for conventional lending.




And what does this last bullet mean? Well, what it really means is,

to go back to the point we made earlier, that if the LTV – if you're providing a deeper soft second, you're providing 15 percent of the costs of the purchase, and so the initial loan to value on the property is only 85 percent, you might want to encourage that borrower to look conventionally, because when, you know, when they get below 80 percent loan to value, they won't have to pay that insurance cost anymore.

With the FHA, lower credit scores are a key factor. Bankruptcies,

foreclosures, their threshold is two years, not four years, so another reason you'd use FHA. They might have a lower down payment. It's only 3.5 percent. Or unique credit, income, or asset characteristics that create that story loan that we were talking about earlier. And certainly if the combined loan-to-value exceeds 100 percent with your soft second and the first, FHA tends to be a little bit more flexible there.

Matt, any thoughts here on how do you go about deciding whether

it's conventional or FHA? Matt Callahan: Well, we start off first, if the LTV is at 80 or below, then we

assume that the loan is going to be conventional, unless the borrower doesn't otherwise qualify. For example, if they've had a bankruptcy, you know, less than four years ago, but, you know, at least two years old. In that case, you would automatically have to go to FHA. If there's some other factor, such as you're trying to defer a student loan and not include that in the debt-to-income calculations, then that might be another factor.

But in almost all instances where the LTV is at 80 or below, we

generally find that a Fannie Mae MyCommunity or Home Possible from Freddie Mac would be the most economical choice for the borrower. If you're above, as you said, Craig, 80 percent loan to value, then on your first mortgage – and you're trying to use subordinate financing, it's probably going to need to be an FHA loan, because you're still going to need mortgage insurance on the first, and I'm not sure the private MI companies are set up yet, at least with any sort of scale, to insure a first mortgage where there's subordinate financing. I've heard at least one of the MI companies can do that, but I've not actually personally seen it happen.

Craig Nickerson: And Matt, do you ever run a loan through DU or LP to see how it

plays out, and then use that as sort of your guidance?




Matt Callahan: Yes, almost always. I mean, it's – those are excellent tools, and if you don't get in a – an approved eligible or an accept through those systems, and you've made sure you've submitted it right, that after that, you'd really start thinking about putting it together as an FHA deal, assuming you think it makes sense and it meets the FHA guidelines.

Craig Nickerson: Great. So I think – I think we're at a good stopping point. If you

go to the next slide here and we just check here. Or not. Jennie: We do have several questions. Craig Nickerson: Yep. Why don't we take those right now? Jennie: The first one is, "Are you finding a lot of the 203(k) loans working

for the NSP 2? Who is using them? Are they finding them to be efficient?"

Craig Nickerson: You know, I might ask HUD if they're hearing much on this, John

or David. But from my perspective, what I would say is that there is – I've heard more use of 203(k) streamlined in the last six months than I heard in the previous two and a half years. It's still more expensive, and there's still this concern that many of the NSP grantees have that it's too daunting to incent a homebuyer to buy in one of our target markets and also take on the task of renovating the property as well.

So for that reason, I think it sort of minimizes the level of use. But

streamlined seems to be much more workable then the classic. John or David, are you hearing that?

John Laswick: Yeah. I think that's accurate. I actually hadn't heard – this is John

– too much about the streamlined, but I know it was problematic the first couple of years, and part of it was, yeah, they – the grantees wanted to do the payouts, and the lenders wanted to do the payouts. And so there was a little bit of confusion on that side.

I do think it probably makes sense if you've got a limited number

of payers or maybe some cosmetic stuff. David's got some observations here, too.

David Noguera: Yeah. I was going to – I didn't catch your comment, but did you

mention Phoenix? John Laswick: No.




David Noguera: Okay. Yeah. So Phoenix, one of our NSP 2 consortium members has been working with Bank of America to assist homebuyers with the 203(k) program, and they've done a number of homes. I want to say it's a couple hundred, at least. So you might reach out to them and get some pointers on how their program's working.

Craig Nickerson: Yeah. I think one of the benefits, too, David, to your point, is that

if you have on staff, if you're a city agency or a nonprofit that has your own rehabilitation specialist, and you know how to do cost estimating and work specifications, you can be that advisor to the borrower on a streamlined 203(k), and maybe allay some of the concerns that homebuyer would otherwise have, because they just don't – they don't know enough about the process.

David Noguera: Right. Jennie: I also have I believe a statement. "Nonprofits that are not

instrumentalities of government cannot assist with the FHA down payment requirement. The buyer has to come out of pocket with money or it can be gifted.

Craig Nickerson: Well, I think sort of the issue we were talking about briefly before,

that – I think the term, and I don't have it in front of me, is a government entity or a nonprofit that is acting on behalf of. Some of the slowdown that we made quick reference to a minute ago with other nonprofits that are looking for that blessing to be a provider of the soft seconds, John and David, I don't know if you have comments on that, or perhaps, Matt, from your firsthand experience out there.

John Laswick: Yeah. We talked about this a bit last week. There is a policy alert

from May of 2010 that talks about the FHA mortgage insurance ____ ___ grantees, and there are some restrictions on the seller providing down payment assistance, and then there was also a requirement for any nonprofit second – soft second mortgage lender to be approved by FHA, and that sometimes takes longer than people want it to, and in some cases they have not been approved, because they don't have sufficient lending history, for example.

So that can complicate the question a little bit. I don't know if

there's a way to modify that. As I mentioned last week, there is a requirement right in the Housing and Economic Recovery Act that prohibits this seller from providing the down payment assistance. The other requirement for FHA approval of secondary lenders is a longstanding requirement, and frankly, I don't see them moving a




lot on that one. So I guess it's encouraging to me to see that Freddie and Fannie are developing these programs that kind of mirror FHA, because hopefully they'll be a little more flexible in how they can administer.

Craig Nickerson: Yeah. I think there's an inherent legacy of mistrust in nonprofits

that goes – in FHA that goes back to some abuses that were, gosh, 15, 20 years ago now, and largely around 203(k). But there's – there probably is – I know the current administration are looking at some ways to streamline that process, so I agree with John. I think the future will look a little bit easier than the recent past.

Jennie: Before the next question, I'd like to give a quick reminder. To ask

a verbal question, please select the hand icon. You'll be placed in the queue, and I will identify you once your line has been unmuted. You may ask your question and then please deselect your hand icon. The next question we have is, "Is there a maximum loan amount on the 203(k)?"

Craig Nickerson: For streamlined it's $35,000.00. For the overall program, I don't

remember seeing one. Does anyone else remember? Rob? Matt? Matt Callahan: I think it would be whatever the FHA regional limits currently are,

which I think across the country is in a 417 with exceptions for high cost areas.

Craig Nickerson: Yeah. Yeah. But nothing on the rehab per se? Well, value

sometimes becomes a determinant there, right? Because it's got to be – the maximum is going to be the purchase rehab cost or 110 percent of the after rehab value?

Matt Callahan: Right. It's based on the after rehab value. Craig Nickerson: Yeah. Yeah. Jennie: Next question. "Does the middle FICO score always relate to the

Experian score?" Matt Callahan: No. The middle FICO score can be, you know, any of the three

bureaus can be the one providing the middle FICO score. It doesn't – it's not tied to any one of the bureaus.

Jennie: Great. Next, "Is anyone using VA financing with NSP?" Craig Nickerson: That's a good question.




[Crosstalk] Craig Nickerson: I'm – go ahead, Matt. Matt Callahan: In theory you could. As a practical matter, and this is hard when

you're talking to a vet, because you want to give them as much assistance as you can, and they're often very happy that they have their VA eligibility certificate. But the primary benefit of VA is that, you know, there's little or no down payment required. And so what we're providing is down payment assistance, and so we're providing what in a sense they don't need.

And if really what they're looking for is affordability, then some of

the other products we've discussed will actually at the end of the day might be more affordable than a VA loan. So I haven't found it to be a good fit or where it makes sense.

Jennie: Okay. The next question is, "What is the minimum time wait for a

short sale to get a conventional loan and FHA loan?" Craig Nickerson: Now see if I understand the question correctly. Is it the minimum

time to wait for the short sale to be executed, or are we talking about minimum time for that defaulted family to qualify for a new mortgage if they didn't get foreclosed upon, but actually sold through a short sale?

If it's the latter, I think it still sticks to the same rules. So a –

whether it was a foreclosure or bankruptcy or a short sale, I think the GSE is going to look at the four-year standard, and Freddie – I'm sorry, and FHA probably the two-year standard.

Matt Callahan: Yeah. I think one – if it's a short sale and the borrower's not in

default prior to the short sale and there's no other derogatory credit, then most cases, it's two years post-short sale. And that would –in my understanding, that applies both to conventional and FHA.

Craig Nickerson: Oh, that's good news. Matt Callahan: Of course, there could be individual lender overlays for more strict

requirements. Craig Nickerson: Yeah. Jennie: Next question, "What agency or bank did the responder mention?

Did not get the name."




Craig Nickerson: For which instance was that? Was that for the portfolio products? Jennie: Unfortunately, the question doesn't clarify. This is from Sandra, if

you want to clarify your question. Next question, "Will NSP allow a non-occupant co-signer, since the home must be occupied by the buyer?"

Craig Nickerson: That's a good question. Matt, why don't you explain the difference

there with FHA? Matt Callahan: So in FHA, you can have a non-occupant co-buyer, someone who

is not going to be occupying their home as a principal residence. So a typical scenario there would be, you know, a young couple getting married, and one of the parents co-signs for them a loan to add their income and credit to the loan application. And FHA will allow a non-occupant co-signer to provide up to all of the borrower's qualifying income and credit.

The difficulty is on an NSP transaction, you're always looking at

household income, and so the NSP guidelines or other, you know, community lending initiatives, is going to be looking at the total household income, and typically, you're not going to allow for a non-occupant co-signer or co-buyer.

Craig Nickerson: All right. Maybe we should move on here and complete our last

segment here. Jennie: Craig, can we jump in on that one a little bit? Craig Nickerson: Yeah. Please. Jennie: We think that the – talking here about it, we think that the co-

signer on the loan is not somebody that gets calculated into the income limits, so, you know, we're not – we need to verify this, but we think that, you know, the family could qualify based on, you know, their – the occupants of the home, and if they have an uncle or a parent that's co-signing the loan with them, that that would not be – we don't think that's counted in the calculation. But –

Rob Grossinger: Unless for some reason they were being counted as a deductible.

You know, a dependent. Craig Nickerson: Yeah. Rob Grossinger: And then that would be considered the household.




Craig Nickerson: Okay. So it sounds like the operative factor there is if they're not considered a member of the purchasing household and serving as a co-signer, it may not impact the income qualifications.

Jennie: Yeah. That's what we think. Craig Nickerson: Okay. All right. Rob? Rob Grossinger: All right. Just you've got up on the screen sort of the key

takeaways from this conversation. The first bullet point, we're not really saying to you, you should become an individual advocate for every borrower and go argue with lenders and make them prove that it's the best product. But I think in one of the recommendations that was made earlier, as you start working with lenders, as they are comfortable with your soft second products, and as you're comfortable with their processes, and you start to let's say put them up on your website, these are lenders that we've done business with, you're not endorsing anyone. You're just saying, these are the ones that have done business with our NSP program.

You can have conversations with them about what products are

you choosing for people who are taking our soft second? I mean, which ones out there seem to be working? And that's not necessarily putting the lender on the spot as much as it's saying, look, we're just – we're curious what's working for you. We have some of our partners who are doing homebuyer counseling. What sort of things should people be looking for before they come in? So in this regard it's just the partnership that you want to get to with your lenders so that you understand the products they're making available to people that are using your assistance.

And the second bullet point, to the extent that you can help them,

one of the things that we heard that was I think a large frustration for the lenders that were in all the roundtables is that these were the community-based – the community lenders. These were people that were trying to do affordable mortgages in tougher communities where appraisers sometimes – appraisals sometimes can be issues, where all sorts of things can rear their ugly head to stop a closing.

They get paid for the loans they make, so they want to make loans.

And then their credit committee or their particular underwriter or their risk management person assigned to them is shooting down loan after loan after loan, they asked NSP grantees for assistance. Please give us some ammunition that we can go to our credit




committee or go to our underwriter or go to our risk management person and say, "Here's what's going on in this particular community. Here's the types of homebuyers that are coming through this NSP program. Here's the assistance that's being given to them. Here's the track record of what has gone on so far in terms of loans made, number of delinquencies, all that sort of stuff."

They're looking for help from you in terms of how to move this

forward, and so that I think takes us right into the next, which is – the next slide, which is collaborating with lenders. Now the key to this is to – the word lender does not have one meaning. It represents one institution, but financial institutions are as siloed as any other large bureaucracy. So you may walk into a branch and ask to speak to the branch manager and think you're talking to George Bailey from It's a Wonderful Life who will make decisions on loans that you – your borrowers come forward on.

The answer to that is no, that in fact in branches they may or may

not have someone full-time who makes mortgage loans. More than likely, even if they do, those are not people that understand government assistance programs. Those are what we refer to as the vanilla mortgage lenders. You come in, you put 10 to 20 percent down, your credit score is 750, you're buying a house that has, you know, either the value you've negotiated with the seller is going to be where that appraisal comes out, all those sort of things. There's very few hiccups.

When you start talking about mortgages that require down

payment assistance or some of the other government programs and have some special tweaks to them, that's not usually at the branch level. There's no one in there. And sometimes they'll have people that rotate, and they stop in once a week, but you have to hope that you're there on the time they're rotating in, or come back when they are.

Every large institution has a community lending group. They may

be all over the country. They may be acting in the role of support to someone locally who will process your loan, or they may actually do it from wherever they are, and it's done sort of using technology. So when it says collaborating with lenders, you've got to first figure out which door to walk in. That doesn't mean you can't walk into a branch and say, "I have – I'm doing an NSP program and I need to find out who the community lending person is."




But you as a municipality or you representing a municipality as a sub-grantee should be able to make contact with, no matter how big the institution is, with someone, the public relations staff, the government relations staff, somebody with the word relations at the end of their business card, and be able to say, "I need to spend some time with your community lending group, because we're – " either you're having issues, or, "We're going again now with NSP 3 or we're using program income or whatever to restructure and redo our assistance programs, and we're looking to be able to get somebody in our stable of mortgage lenders."

So it's – the first – the biggest hurdle is figuring out who within

that institution to talk to. Those folks, along with your local government relations and public relations people, have the vested interest in working with you. Their role is to represent that community. You may find that your biggest advocate in a bank is not a mortgage lender, but it's somebody in the public relations side of that institution or someone in the government relations side.

And when I say that, many, many of these institutions do business

with your local governments, underwriting bond issuances, being city depositories. That's where the leverage is. That's where the sort of relationships that they want to keep with your city or your town or your state are going to come into play.

So designing a – you know, designing a program that provides

tangible benefits to the lenders, the homebuyers, and the community, well, that obviously is the win/win/win. But in the end, you have to structure a program that fits within the abilities of the lender. And I don't say that in terms of, you know, athletic ability. I say that in terms of system ability. The systems now are larger and larger and larger. They're doing – I mean, if you remember back to the beginning of the foreclosure crisis, one particular servicer, who is also a very large financial institution, was fielding 95,000 to 100,000 calls a day.

So when you have to deal with a multitude of things going on in

what was sort of a nice mortgage company business ten years ago, you are struggling to do anything other than one way, and then trying to get everyone to fit into that one way. So find out what your lenders are doing and do the best you can, this repeats what I said in the earlier segment, to fit into the way they're capable of doing it. Otherwise, they may say they can help you and you may expect to be helped, and three months later or six months later or nine months later, you're still waiting for a loan to close.




Again, we talk about articulating to the lenders the value proposition. That's more in terms of the ammunition piece, giving ammunition to the people you identified that want to make loans in your community so they can describe the credit risk accurately to their committee or their individual underwriter assigned to them.

Can we go to the next slide? All of these bullet points all are true

and yet may or may not make a difference to the lender. You have to determine that in your conversations. They may – they may say, "This really helps, and this sort of information is going to help us build a better argument for why our particular credit risk in this particular neighborhood to these particular types of borrowers is within our tolerance."

On the other hand, they may say, "We just can't accept this sort of

information. We have to do everything the same way everywhere across the country, and we can look at values. That's what we look at. But we can't look at the sort of extra bells and whistles you're building into your product. What you hope is that fewer of the lenders take that position, and the ones in your community, even if it's the large bank, will sort of listen to you, take that as part of building an arsenal for an argument, and go forward.

So again, I talked – you know, the last bullet points, lenders can

strengthen community ties and gain recognition. Again, some care about that more than others. Some view that differently than others. It's a matter of learning who the – what the tolerance of and the culture of the institution within your city is. Even one institution, one large national institution, may have different thoughts about different geographies, for all sorts of reasons. I don't mean to make it sound as complicated as this, but it's getting a sense of who those folks really are and what they need in order to serve your community, and how much their motivation is to serve your community.

These are – these are questions that quite honestly you'll probably

never get an honest answer to. If we go to the next gate and the next slide, gauging lenders' commitment. They're always going to say you're a priority market. I've never had someone walk into a financial institution and say, "Is this a priority market to you?" and have them say, "No, and get out of my office."

So they're always going to respond positive to that. Whether or not

they're going to open more branches does give you an indication of their commitment, of their view of what they get out of that community. What's their market share? How do they view it?




So you don't have to ask them that question as much as look at

their prior behavior. If they're closing down branches and shutting ATMs in your community, they are viewing their market share as dwindling and their interest may fall down a bit. If they are stable or growing, that gives you a much better chance to say, "We want to help you grow in our community and we want to provide you with borrowers."

How you can support them in their Community Reinvestment Act

goals, that is very tricky, because you'll never totally understand how they do their CRA analysis. You can even read their performance evaluations and not come away with the best understanding, and plus they're usually three years old by the time they're published.

But you can get a sense if they have an interest in expanding their

affordable mortgage for purposes of meeting the lending test under CRA. You can do that by reading past commentary in their performance evaluations, and you can also ask, there is no financial institution on the face of this – I'd say earth, but I can't really say that – in this country that doesn't want more good quality low to moderate income mortgage loans, either low to moderate income borrowers, or made in low to moderate income neighborhoods. That's – they're always going to be in search of those to meet their Community Investment Act.

But the overarching view now is that safety and soundness trumps

Community Investment Act, especially in this current environment we're in. So you still have to say to them, "We're bringing you quality borrowers. We can give you a pipeline of quality borrowers. Here is how we can show you that's the case, and here's what we can do."

So building that relationship with your local lenders is getting past

sort of the most important thing. They always view that community people are in to ask for something, to demand something, to protest something, or to simply yell at them. So trying to get them to see that you're trying to produce a win/win, you want to give them more business, but the only way you're successful is if they get business by making loans, and the only way they're successful is making loans, because they certainly can't just sit on the money you've deposited, because it doesn't – they go out of business if they're not making loans. They can't live off the Fed window and your deposits and just sit on the money.




So if you can go to the next slide, I've talked about a few of these. Conducting training sessions, we heard last week from Jim Stans from Columbus. He's actually brought a number of his lenders together to talk to them about the NSP program as it's being run in Columbus, to train them on what they go through in terms of assistance to borrowers and what their programs look like, and to hear from the lenders in terms of what their needs are.

I really want to impress the third bullet point, create a list on your

website of the active certified lenders. Again, you're not – you're not endorsing a particular lender. You're simply saying, these are the ones who've completed a few transactions, who've done some loans successfully using our assistance under the NSP program, and that can educate your borrowers in terms of where to go to start to get that first lien assistance that you need them to get.

And creating marketing materials, obviously that makes sense, but

it's more important to get them into a face to face conversation. Dropping off frequently asked questions or cheat sheets or brochures is not going to get you where you need to be unless you're doing it as part of the end of a face to face conversation, whether that's in a group setting or individually. Then you can – those sort of leave-behinds make sense.

Next slide, please. These are the takeaways based on – you know,

we've talked about all of this. Craig, I'm going to see if you have any additional information or thoughts. The last bullet point is where you can look for people's CRA performance evaluations. Again, they're worthwhile in the sense that they can, if you hone in just on the lending test, you can get some sense of things, but they are very dated, and some banks only want to be satisfactory. Some really want to be outstanding for different reasons. And so that's another thing you have to understand. You can ask your local institutions, "Is your goal to be outstanding or satisfactory?" They may or may – again, whether they tell you what they want you to hear or they tell you the truth, you'll never know. But it's – the best thing you can is to ask the question. Craig?

Craig Nickerson: Rob, the one thing I'd say here on this last point of the CRA stuff is

CRA is slowly coming back. The big banks, the regional banks that want to expand are looking at it seriously again. And OCC, many of you know this, but OCC a year and a half ago came out with a regulation linking neighborhood stabilization programs to CRA benefit.




We still see a lot of lenders, particularly the lenders on the ground there in the communities that are not aware of this, and it is one of those factors that may incent them to take a more serious look at your programs. There is a fact sheet that OCC put out, I forget when, but the Office of the Comptroller of the Currency, put out a fact sheet that describes all the various ways that national banks and others that they govern can get CRA credit in neighborhood stabilization program activity. Lending is one of the primary ways.

And they make it more flexible than it typically is. Typically it's

for low and moderate income lending. In this context, it's for low and moderate income lending or anyone in an NSP target market, I believe, but I know it's certainly up to the 120 percent AMI that NSP allows. So it may be something – as another argument, another point to throw into the discussion.

And I know someone just asked me about what does OCC stand

for. It's the Office of Comptroller of the Currency, the regulator for the national banks and the federal savings and loan. So they cover all the big guys, Bank of America, Chase, Wells Fargo, Citi, US Bank, all those regional lenders. They're sort of the regulator these days.

So I think we've reached basically the end of our presentation. Are

there any other questions or – Jennie: We do have a few questions. Craig Nickerson: Okay. Jennie: As a final reminder, you may ask a verbal question by selecting the

hand icon. You will be placed in a queue. I will identify you once your line has been unmuted, and you may ask your question. Please deselect your hand icon once the question's been answered.

And the first two things we have are more of a statement. The first

one is, "Yes, we have used VA financing with our NSPs." And the next is, "The 203(k) standard program for the agency and banks that are using this, I would like to contact them."

Craig Nickerson: Contact who? I mean, I'd suggest for more information check the

FHA website. So HUD.gov, and go to the /FHA, and search for 203(k). You'll get some good fact sheets. Be careful. There is a bunch of websites out there that I've encountered that look an awful lot like the FHA website, but they're not. They're just




mortgage companies trying to look like the federal government. But if you go to HUD.gov, you'll get there.

There – among the top lenders, the national lenders, the only one

that I know is very actively engaged in 203(k) is Wells Fargo. I think Bank of America may do a little bit of it. But many of the regional lenders also participate, but FHA could tell you that as well. And you might check with the FHA Home Ownership Centers around the country to get some of that information as well. John and David, I don't know if you have any other thoughts on 203(k).

Jennie: No. We – I think you're closer to it, Craig. Craig Nickerson: Okay. Jennie: I also have a question from Shanta. Unfortunately, you don't have

a phone icon next to your name, so I can't unmute you. Please post your question in the Q&A panel and I'll read it aloud.

The next question we have is, "You all spoke briefly about

appraisals. What has been the trend with grantee purchases a property and it's appraised at one amount, then about six months later a potential homebuyer gets the property appraised and there is significant decrease in value?"

Craig Nickerson: Rob, do you want to – Rob Grossinger: Well, and I actually mean this. Welcome to the horrible world of

appraisals. The problem is two different appraisers are going – can come out with very different appraisals. The second is in six months in this market, you can actually see decline. We're still not – we haven't hit bottom yet. In certain markets we may have. Other markets, we haven't.

So one of the things to do, we talked about this last week, is if

you're a grantee and you've purchased a property based on an appraisal assuming it'll be at a particular value post-rehab, or if you're not doing much rehab, is to – what – you can as the seller provide that information to the appraiser retained by the lender. There's new – all the rules now about lenders not being able to talk to appraisers does not prevent you from talking to them. So you can – you can say, "This is what we did. This is how we did it before." So at least you can get an understanding of why all of a sudden they're coming in $10,000.00, $20,000.00, $30,000.00 less.




The more you can educate the appraisers in your – in your community around the issues that you're doing, the type of rehab you're doing – remember that they may be just using comparables of distressed sales in your neighborhood, and those may just be people who bought REOs, slapped some paint, and sold it. You're probably doing more extensive rehab.

So it's a question of educating the appraisers, all of them in your

community, and not being intimidated by the rules now that prevent lenders from talking to appraisers directly. You can still do it. So in this case, I'm not surprised that a six month period passed and you may have seen a decline in the value of the property. I'm also not surprised that if two different appraisers looked at it, they came out with different values.

One of the morals of the story is sell quick. I mean, if you can – if

you get an appraisal and then you want to sell it at that price, the quicker you sell it, the more likely the purchasing appraisal will be closer to what you want it to be. We are just in a bit of a volatile market. But education here I think is the key.

Craig Nickerson: Yeah. I couldn't agree more, Rob. And I think the whole

definition of a comp, you're deriving value from comparable sales. Well, in your declining neighborhood stabilization market, that comp may be, as Rob suggested, a property that really isn't a comp. It's not comparable. The level of rehab was cosmetic and not substantial.

We had a number of participants in the roundtable leave the

roundtables, go back and organize meetings with the local appraisers. Some of them just picked three or four that they knew could be responsive and met with them, but others met with a broader set of appraisers, to change their perspective on what's happening in that neighborhood, to inform them. The level of misinformation and frankly ignorance around NSP among some of those groups, those appraisers, was palpable.

So again, a number of you have said this. Rob said it a couple of

times. Don't be shy about making sure that people see what's in front of them. Appraisers may rely on their sort of tried and true but safe harbor ways of estimating value, and it's only going to hurt you.

Jennie: Before we move to the next question, I do want to give a quick

reminder. Please feel free to fill out the survey. You should be seeing that on your screen now. The next question we have is,




"Where can I get the info again about the OCC CRA and NSP? What key words would you suggest I use to find it? I have a lender breakfast tomorrow and would like to share it."

John Laswick: I can answer that, Craig. I looked it up on the NSP Resource

Exchange and just went to the find a resource page and used the search word comptroller, and I came up with the regulations that say that NSP investments count as CRA. So if Shanta wants to go on there and search for comptroller, it was like the second response that came back.

Craig Nickerson: And John, what I'll send to you, and maybe you can forward as

well, is there's a fact sheet corollary to that which I was just reading, so I have it in my system. I'll send it to you right after this call.

John Laswick: Yeah. Actually, there may be a way for you just to post it on this

site. I don't know. I'll have to defer to the technical people. But some of these programs allow you to, you know, just pop it right on there, too. So yeah, that would be helpful ____ that.

Rob Grossinger: I would just like to add, having unfortunately had to do CRA

compliance for a large financial institution, one of the questions you may get from the banks is what kind of credit do I get? And even when they read that, they're not going to be sure. You don't get a loan unit type of credit, which is how the lending test is enforced. It's all on tables. It's all based on how many loans you made and where did you make them. It's not an investment credit, which is another one of the tests, and it's not a community services credit, community development services.

But what you can say is it is – it's an addition – it's a helpful credit

which can move you off of, if you're between ratings, to the next rating up. So it's not – it's kind of like extra credit, but I wouldn't use that phrase. I would just say it goes into the overall calculation and the lending test, and it gives you more assistance in terms of pushing you forward and how the OCC views your final rating under the lending test. But it is not – it's not quantifiable within the actual exam.

Craig Nickerson: So I have – I have the actual web connection. It's a little long.

Would you suggest I read it, or what? Hunter Kurtz: Craig, why don't you include that in what you send me and we will

edit the slides and put them up on the resource exchange with that link and then the two links from Fannie and Freddie.




Craig Nickerson: Great. All right. Will do. Hunter Kurtz: Thank you. Jennie: The only questions I see that we have left are from Sandra.

Sandra, there may need to be some clarification. Please raise your hand if you want to verbally ask these questions. The first one is, "Reminder about question on the 203(k) traditional." I'm not sure which question she's referring to.

Craig Nickerson: Yeah. I think what we'll do there, Sandra, is I think you're looking

for more information on the 203(k) standard program, the details. And what we can do is post some fact sheets on that as well, along the same lines that we – that Hunter just mentioned.

Jennie: She actually has her hand up, so I'm going to go ahead and unmute

you, Sandra. Go ahead and clarify any question that you have. Audience Member: I think that works. This is Sandra. Craig Nickerson: Okay. Audience Member: Okay. But your posting will work for us. Craig Nickerson: Okay. Great. Audience Member: Yeah. Thank you. Jennie: Sandra, I'm sorry. You also had a question, what are agency ____

using this a lot. Rob Grossinger: I think Craig answered that one in mentioning Wells and Bank of

America, but also to check FHA. Jennie: Okay. Craig Nickerson: Right. And I think maybe the key is calling your FHA – they call

them HOCs, Home Ownership Centers. They're around the country, and you can easily find them – on – by a search. Because they'll know not only who is very active – sometimes very small lenders specialize in 203(k), and they do a lot of business that way. Has that been your experience, Matt, as well?

Matt Callahan: Yeah. It's a program – well, it is a niche program. You've got to

find the right bank and loan officer who's doing it. There's some




loan officers that just, you know, they've not built their business around it, but there's some, that's all they do. So you really have to ask around.

Jennie: And then the last question I see is I think a follow-up question. "Is

it possible to get today from anyone the OCC link?" Will you guys be posting that?

Craig Nickerson: Yeah. So Shanta, I see your email here on the system, and this is

Craig Nickerson. I will email you that link directly. But for everybody, I think what HUD said is they'll have it up rather quickly.

Hunter Kurtz: Craig, what we'll do is – and just for everyone out there, we'll have

these slides edited on the research exchange to include these links, and then in next week's presentation, I think we'll try to add these links, too, so people can look for it there.

Craig Nickerson: Okay. Jennie: And the last thing I have is, "Posting fact sheet on 203-3?" Craig Nickerson: Okay. Well, we'll post the fact sheets on 203(k), 203(b), all the

basics there. Jennie: Great. I no longer see any questions in the Q&A panel or any

raised hands. Craig Nickerson: Okay. Rob, any final words? Rob Grossinger: Not a one. Craig Nickerson: Okay. Well, thank you, then, to HUD and to all the participants

for this opportunity, and don't get discouraged out there. I think the more we engage the lenders and push for the right kind of responses and enlighten them on what we're doing on the ground, the better it's going to get. That pendulum is beginning to swing back towards the middle, and hopefully that means a lot more mortgage capital for your homeowners. Thank you all.

[End of Audio]

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