July 2, 2020

Chenoa Fund demonstrates how responsibly run national DPA programs benefit the consumer. Innovative financial solutions, such as our CRA Note Exchange, have allowed us to offer the Rate Advantage program, which offers rates competitive with standard FHA loans, even with DPA included. Also, by running mortgage banking in-house vs. outsourcing operations through large bankers, we have brought costs down to consumers, while helping lenders avoid losses on DPA. Additionally, through careful monitoring of our loan defaults, we added overlays to mitigate risk without eliminating offerings to underserved populations. Independent financial/operational audits are conducted throughout the year to assure partners our compliance with all industry requirements. We constantly strive to improve our offerings, pricing, and service. These measures allow us to serve significantly more minority homebuyers than any other DPA program (54% of borrowers are minorities). We sincerely thank each of our amazing correspondent lenders, making our program available where most needed.”

 

Read the full report here.

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21 Years to a 20% Down Payment: USMI Reveals the Massive Down Payment Barrier

Recently, U.S. Mortgage Insurers (USMI) published a report revealing that, on average, it takes borrowers 21 years to save up for a 20% down payment. This number falls to 7 years for a 5% down payment, which is still a long period of renting and saving. In either case, waiting this long deprives borrowers of a significant amount of wealth accumulation from equity.

 

Opportunity Costs: Losing Equity

Let’s put this into perspective using USMI’s numbers (a national median income of $63,179 annually) and assume yearly home value appreciation of 5%. If a borrower saves for 7 years, a home worth $274,600 today (the national median average) would be worth about $386,389. A borrower saving 21 years for the same home would find a new home price of $728,595. The following chart illustrates the price difference for both scenarios and the difference in down payment costs.

 

 

Home Value:
$274,600.00
Home Value:
$274,600.00
Value +7 Years:
$386,389.78
Value +21 Years:
$728,595.55
Difference:
$111,789.78
Difference:
$453,995.55
Original DP (5%):
$13,730.00
Original DP (20%):
$54,920.00
DP +7 Years (5%)
$19,319.49
DP +21 Years (20%)
$145,719.11
Difference:
$5,589.49
Difference:
$90,799.11

 

Waiting only 7 years for a 5% down payment has the lowest opportunity cost of these two scenarios, but that opportunity cost is still very stiff: $111,789.78 difference in home value lost, and a down payment over $5,000 more expensive. It’s clear that waiting costs borrowers a lot of money, even when the down payment is smaller.

 

Opportunity Costs: Worse for Minorities

These numbers aren’t good, and they are much worse for borrowers in demographics that statistically struggle with the down payment barrier. For example, if the above averages were broken down nationally by race, white Americans average about 20 years to save up for a 20% down payment, putting them about on par with the national average. Hispanic Americans average about 26 years, raising the above projections and wealth loss by a decent amount. Black Americans, on the other hand, average a whopping 42 years (Private Mortgage Insurance, 6). Black Americans are also much less likely than white Americans to have family that can assist with the down payment, making it more likely that their only option is to save up. Taking twice as long to save up for a down payment, and with home values increasing yearly, black Americans lose over twice the equity wealth that white Americans do when waiting to buy a home and saving for a down payment, whether it’s a 20% down payment or a 5% down payment.

 

 

Opportunity Costs: Time

These numbers show a great deal of wealth lost when borrowers have to save for years for a down payment, but they don’t reflect the time lost as well. Waiting 21 years for a 20% down payment (or 42 years, as is the average for black Americans) sees enough time pass to have a child grow up and move out. Waiting 7 years for a 5% down payment (14 years for black Americans) sees enough time pass that a family’s babies turn into adolescents, all without the benefits of living in a home their family owns.

 

 

Opportunity Costs: Rent Versus Mortgage Payment

More immediately, borrowers miss out on a lot of wealth just from the difference between rent payments and mortgage payments. The average US rent payment is $1,343 and raises about 5% a year. Using USMI’s numbers, and assuming a fixed interest rate of 3.25% (just a little higher than the national average of 3.15%), an average mortgage payment would be $1,195—about $150 cheaper every month. This doesn’t take into account insurance, HOA fees, and other costs that come with homeownership, but fixed-rate mortgage payments don’t increase every year, while rent payments do.

 

Level the Field: Down Payment Assistance

At CBC Mortgage Agency, we are grateful for the efforts of groups like USMI that provide products and services that help borrowers buy a home with smaller down payments. The smaller the down payment, the sooner the borrower can buy the home and experience wealth accumulation. We also cheer that borrowers can get conventional loans with 3% down payments or FHA loans with 3.5% down payments, further lowering the down payment barrier. However, even with lower down payment options available, the down payment barrier is still very real, and still prevents many borrowers, particularly low-income borrowers, from buying a home and accumulating wealth. The next step needed to level the playing field and empower as many creditworthy borrowers as possible is down payment assistance.

 

Down payment assistance allows borrowers to purchase a home for $0 down, and sometimes even helps with closing costs. The difference in wealth accumulation is staggering for borrowers who can buy a home now. All the numbers presented above—the tens and hundreds of thousands of dollars lost as borrowers waited to save for a down payment—becomes future wealth when borrowers can buy now.

 

Actual Results: Chenoa Fund’s Success

Tens of thousands of borrowers have used Chenoa Fund to purchase a home, many of which were first-time homebuyers and/or minorities, and their stories are a testament to the importance of down payment assistance. For example, borrowers that received Chenoa Fund’s assistance in 2016 have since averaged over $59,000 in wealth accumulation! From 2016 to 2019, all borrowers included, Chenoa Fund borrowers have averaged over $24,000 in wealth accumulation. This difference is life changing.

 

Chenoa Fund isn’t the only down payment product on the market, and wise borrowers will shop around to find the down payment assistance that fits their unique situation best. This is a good thing—more competition means more innovation to provide a better product to borrowers, and prevents the harm or stagnation that comes with monopolies. More access to down payment assistance, specifically assistance that targets creditworthy borrowers, can only help improve American homeownership across the board, and help low- to moderate-income borrowers break the down payment barrier and see real wealth accumulation now.

 

 

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June 26, 2020

Chenoa Fund demonstrates how responsibly run national DPA programs benefit the consumer. Innovative financial solutions, such as our CRA Note Exchange, have allowed us to offer the Rate Advantage program, which offers rates competitive with standard FHA loans, even with DPA included. Also, by running mortgage banking in-house vs. outsourcing operations through large bankers, we have brought costs down to consumers, while helping lenders avoid losses on DPA. Additionally, through careful monitoring of our loan defaults, we added overlays to mitigate risk without eliminating offerings to underserved populations. Independent financial/operational audits are conducted throughout the year to assure partners our compliance with all industry requirements. We constantly strive to improve our offerings, pricing, and service. These measures allow us to serve significantly more minority homebuyers than any other DPA program (54% of borrowers are minorities). We sincerely thank each of our amazing correspondent lenders, making our program available where most needed.

 

Read the full report here.

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June 23, 2020

Monitored Marketplace: It appears HUD is considering regulating the benefits to, and geographical operating areas of, governmental entities providing DPA, like CBC Mortgage Agency. But Miki Adams, vice-president of CBC, which operates the Chenoa Fund program, says there is a better way: a monitored marketplace that tracks the pricing and performance of loans by individual governmental DPA providers, something HUD doesn’t currently do but easily could. This would allow HUD to establish performance standards for DPA loans and ensure there is a competitive market so that borrowers get the lowest costs and a variety of products. After collecting sufficient data, HUD could use the pricing and performance statistics to support rulemaking. But “HUD intends to do just the opposite: regulate without supporting data, creating onerous requirements for government DPA programs,” Adams says. “That will inevitably produce fewer options and less benefit to borrowers.” Read about the Monitored Marketplace here.

 

As seen in the Chrisman Report- full report can be read here.

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How to Understand The Mortgage Process As A Realtor

Author: Christian Olin, VP of Direct Lending

As a realtor, you are usually the first point of contact for any homebuyer. Whenever your client has a question, you are the first person they think to ask. They are going to be looking for guidance from you. That’s why the realtor must take on many roles; negotiator, salesperson, loan expert, and even occasionally family therapist. It’s supposed to be hard work. Otherwise, it wouldn’t be interesting.

Since you are going to need the answer to all their questions, it’s always a good idea to brush up on your knowledge of the loan process. If they are contacted by a stranger asking for their information, you must be able to explain it is their underwriter. If your client wonders what documents they need for closing, you are going to have to provide an answer. Even if you’ve never bought a home yourself, you should be very familiar with the mortgage process. Here are the ins and outs of securing a mortgage as well as critical milestones for you to track for your client.

Are They Financially Prepared?

Having all the documentation ready in advance can streamline the process. It is not a step you should skip over. We know many people are uncomfortable disclosing their financial information. Nonetheless, it is going to be necessary. You want your clients to be prepared and understand the kinds of paperwork they will be required to submit. It is a big responsibility that you shouldn’t take lightly. Make sure that they have done research on different lenders, visited their websites, and looked into their interest rates. Because of many different factors, interest rates fluctuate every day, and some lenders may be able to get your client a better deal. After you have encouraged your client to understand their finances, have them gather the documents that they will need to prepare for their mortgage.

  • Two years of W-2s
  • Paystubs dating back two months.
  • Bank statements verifying assets for two years
  • ID to verify who you are.

Next, you will need to get pre-qualified, which is the first part of the mortgage application process. Your client should pre-qualify before they go home shopping. Giving your clients choices and seeing what they choose is best. Giving unbiased options is a strong signal of trust. 

The pre-qualification is based on verbal verification. Internally, the lender will make some quick calculations and a decision. The client must be as honest as possible with their answers. Lenders are very meticulous throughout the approval process, so lenders discover falsehoods pretty quickly.

Nowadays, it’s easier to get pre-qualified. A tiny phone app will provide you access to a simplified application process. Your client will be answering questions about their income, employment, debt, and assets. You can send pictures securely and fill in other details inside the app as well. When finished, the lender discloses a letter to your client, and they are ready to go home shopping.

Starting Their Application

Once you have found the perfect home and have signed a sales contract, you will return to the application and put in information about the home you are trying to purchase. A disclosure is issued to your client, and they will be able to see the estimated terms of their loan. Origination can be an expensive process. It takes a lot of moving parts and different hands to make the whole process run smoothly.

A part of the process that many realtors don’t consider discussing with their clients is locking the loan. It is up to your client when they want to secure the loan, although sooner is often better. The earlier you lock, the less risk your client takes. Your client will be able to take advantage of the rate the lender is currently offering. However, if the market improves and rates lower, your client will be locked into that rate. Usually, the best play would be to lock early, so you are sure about the interest rate the loan will close with. You can watch the market for a while beforehand, so you know you’re making the best choice.

There are a few milestones you should be able to track with your client as their application moves along.

  • Processing
  • Underwriting
  • Closing

After you have put in your application, the first touchpoint the lender should have with the client is processing.

Processing

When your application moves to the processing department, they will first organize all your paperwork, making it easier to understand the loan file. The processor also orders any appraisals and may issue loan disclosures. In addition, they will check that your client has homeowner’s insurance on the home they are trying to buy.

The processor is the first person to handle your loan file, so they are an essential part of the mortgage process. Usually, processors try to send disclosures electronically and recommend taking advantage of E-consent. Sometimes disclosures, especially with some government programs, can be very lengthy documents. Using E-consent can be a great way to review your documents and save the paper. Once the loan files are organized, and the disclosures are sent out, the loan is moved from processing to underwriting.       

Underwriting

Finally, everyone is on the same page. The client knows the terms of the loan, and the lender has all the documentation verified so they can make an educated decision. Now the loan will move into underwriting. The underwriter is the key decision-maker on your client’s loan. During this part of the process, all the documentation is reviewed, and the underwriter will consider a few different factors when deciding to approve the loan. Often an underwriter issues a conditional approval.

This will mean that additional documentation is required. Some examples of conditional approvals can be a request for a letter of gift. A letter of gift explains that if you are using a donation for your down payment and not another loan. Another example is a letter of explanation. A letter of explanation is a statement about an adverse credit event that may be showing in your client’s credit history. Both of these documents require a signature from the borrower. It is essential to look out for a conditional approval, as this will require legwork from the borrower. Once the borrower has given their conditions, they will be ready for closing. 

Closing

Everyone involved in the home loan process will be very aware of the closing date. This is when both the borrower and seller sign and notarize closing documents at the title agency. This is an important time for everyone because all their hard work is paying off. For the borrower, this experience can be nerve-wracking. They’re probably excited and a little anxious to get into their new home. Before the closing date, though, a closing disclosure is sent out.

This document will highlight the final points of your client’s loan. This document will also outline all the fees that your client should have prepared at closing as well as the estimate and payment information. Once the closing date passes and the documentation has been signed, the funding will be sent to the sellers. A handoff of keys will have to be arranged. You’re done and you can breathe a sigh of relief. Congratulate your borrower and let them know, if they are interested in purchasing another home, to reach out again. 

 

Meet the Author:

Christian Olin, VP of Direct Lending

Christian started his career right out of college as a rookie on Wall Street with Morgan Stanley. After cutting his teeth there, he was quickly poached by a private investment bank, which is where his love of finance grew into a lifetime obsession. With over 20 years of experience, he has become a specialist at sales management, strategic business development, building best of breed teams, and cross-functional selling. In particular, his experiences in emerging finance technologies have been useful in his current role as Vice President of the direct lending team at On Q Financial. A place where he continues to create new opportunities for mortgage lenders and their partners while improving the bottom line.

 

 

 

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June 12th, 2020

Steps we’re taking to help our borrowers during COVID-19 

As COVID-19 wreaks havoc on the lives of many mortgage borrowers, those who utilized down payment assistance (DPA) to purchase their homes face an additional obstacle. DPA that comes in the form of a forgivable second mortgage requires that borrowers remain current on both their first and second mortgages. But CBC Mortgage Agency is preserving the forgivable feature for borrowers who default because of a layoff or furlough. CBC is also reaching out to its distressed borrowers to alert them of their options including reviewing and cutting expenses, staying current on their mortgages, and educating them about the consequences of forbearance. It is also encouraging borrowers to create and maintain a budget and providing borrower counseling through Money Management International. Existing CBC borrowers can find out more about their options at www.ChenoaFund.org

 

Read the full report here: https://www.robchrisman.com/june-12-ae-lo-ops-jobs-dpa-pricing-doc-products-usda-fha-va-notes/

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June 15, 2020

In its Regulatory Plan for FY 2020, HUD raised concerns about governmental entities benefiting financially from DPA programs. To ensure government programs are not benefiting too much, HUD is considering establishing a de minimis amount that government programs can receive above the cost of the DPA. Such a regulation could dramatically decrease the amount of DPA available from governments who could no longer fund their programs. Government programs like the Chenoa Fund, offered through CBC Mortgage Agency, provides minorities, who often lack intergenerational family wealth to help with home purchases, the ability to buy a home. CBCMA EVP Miki Adams says, “HUD’s focus should be less on the benefit to the government entity and more on the benefit to the borrower.” Adams added that HUD needs to base any changes it makes on program specific loan performance and pricing data, which HUD is currently not collecting. See our policy recommendations here.

 

Read on the Chrisman Report: https://www.robchrisman.com/june-15-production-jobs-marketing-cap-mkts-servicing-products-correspondent-tidbits-webinars-training-this-week/

 

 

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June 5, 2020

Be part of the solution. Minorities have 1/10th the net worth of Whites. According to two prominent African American leaders, this wealth gap is the greatest civil rights issue of our day. Homeownership is the best vehicle for acquiring wealth. You can enable the engine of wealth creation in your community by helping minorities learn about down payment assistance programs to buy now and begin building wealth. Be more than simply a mortgage lender pursuing the latest refi or purchase boom. Now is the time to take a stand and help those missing out on homeownership opportunities.  Be a part of the solution in the creation of housing equality and bridging the racial wealth gap. Contact Chenoa Fund and find out how you can do your part to enact real change. We have the training materials to aid you in your active community outreach.

 

Read on the Chrisman Report:

June 5: Risk, appraisal, LO, AE jobs; broker, DPA, LOS, products; FHA COVID forbearance guidance; payrolls push rates higher!

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Conversation: Hispanic Homebuyers Will Be Critical for the Next Housing Market Recovery (Urban Wire)

On May 6th, 2020, Urban Wire posted an article about Hispanic homebuyers and the post-COVID housing market recovery—Hispanic Homebuyers Will Be Critical for the Next Housing Market Recovery. Here’s Why They May Struggle. The following quote quickly summarizes the article: “The youth and high labor force participation rates of Hispanics position them well to help the housing market recover from the current crisis, but to unleash the power of this demographic, we’ll need to support potential homebuyers and address issues regarding access to homeownership.”

 

Some Critical Urban Wire Data

Urban Wire uses the following data to claim that Hispanics could lead the housing market recovery:

  1. Hispanic homebuyers contributed significantly to the post-2007 housing market recovery.
  2. The Hispanic population is growing quickly, making up 57.6% of population growth (2018), and making up 40.4% of household formation in the last decade.
  3. The Hispanic population falls mostly in prime homebuying demographics, provided they financially weather COVID-19 well.

 

Urban Wire also notes several barriers that could prevent Hispanic homebuyers from this potential:

  1. A high median DTI ratio (42%), with over 1/3 above 45%.
  2. Most Hispanic families can only afford small down payments, with a 2018 median of 3.5%.
  3. The Hispanic population largely has vulnerable incomes.

 

CBCMA Commentary

One of Urban Wire’s five recommendations to strengthen Hispanic homeownership was down payment assistance, and, at CBC Mortgage agency, we couldn’t agree more. We’ve already spent a lot of time sharing how down payment assistance can unleash the power of underprivileged potential homebuyers.

 

The benefits of down payment assistance are enormous, and the risks surprisingly small. For example, a fairly recent Harvard study showed that down payment assistance doesn’t significantly affect the risk of loans—great news, because down payment assistance can be used to overcome most of the barriers that Urban Wire identified. Let’s use Chenoa Fund as an example. Many Hispanic borrowers are held back by high DTI ratios—however, about two-thirds of these borrowers have a DTI of 45–50% (or below), which is within Chenoa Fund guidelines. Thus, these borrowers still have an option to help them break into the home market. Additionally, most Hispanic homebuyers can only afford small down payments, the median being 3.5%; well, Chenoa Fund provides 3.5% down payment assistance on FHA and conventional loans, exactly what these borrowers need. These borrowers can be responsibly assisted into homeownership, begin wealth accumulation and a pattern of intergenerational wealth, and they don’t have to be held back by poor circumstances. Even better, helping Hispanics (and other minority groups) can help the economy bounce back faster following the COVID-19 epidemic.

 

CBC Mortgage Agency’s own data also supports Urban Wire’s positions. First, borrowers that used Chenoa Fund accumulated an average of $27,000 in equity from 2016 to 2020—real wealth gains, great for both the borrower and the economy. This is also wealth that, for the most part, could not have been generated otherwise, as about 90% of Chenoa Fund’s borrowers would not have been able to buy a home without assistance. In short—everything we have suggests that Urban Wire is right, at least with regard to down payment assistance and the potential power of minorities.

 

We also want to applaud Urban Wire for the other solutions it proposed that could help Hispanic communities more easily access homeownership; no one solution, alone, will bring homeownership to minorities, or help the housing market resurge. Federal aid, more robust income assessment measures, and land-use and zoning reform could positively change generations of Hispanic families by putting more in homes today. CBC Mortgage Agency lends its voice in support of all efforts to responsibly improve homeownership. We also suggest reading Urban Wire’s article directly—it’s worth every word.

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The Cleveland Realtist Association, Minority Homeownership, and Chenoa Fund

41%.

 

That number represents the homeownership rate of the black community in the United States.

It’s among the lowest of homeownership rates in the nation—and it has been going down for years. Homeownership rates improve slightly for other minority groups, but they still aren’t good (45–55%). From this, it is clear that many underprivileged Americans need help to access the benefits of homeownership.

 

Fortunately for Ohio, there is the Cleveland Realtist Association (CRA).

 

The Cleveland Realtist Association, a chapter of the National Association of Real Estate Brokers (NAREB), dedicates itself to fighting inequity and injustice, and to building up its local community through service and education initiatives. The CRA knows the hardships that face black and minority Americans and seeks to raise their standard of living through homeownership.

 

The Cleveland Realtist Association also strives tirelessly to serve its communities in many other ways; here, I want to highlight two efforts that CBC Mortgage Agency (CBCMA) has supported the CRA in.

 

First, the Cleveland Realtist Association champions down payment assistance (DPA). DPA is a necessary resource for many black and minority families, as the down payment is becoming an increasingly insurmountable barrier to homeownership. CBC Mortgage Agency, provider of Chenoa Fund, applauds the CRA’s vision and strives to support the CRA and the cause of down payment assistance.

 

Second, the Cleveland Realtist Association provides many trainings to help real estate agents become certified realtist. In fact, one of the CRA’s recent trainings prepared over one hundred realtist to serve their communities in Cleveland, Columbus, Dayton, Cincinnati, Akron, Youngston, and Toledo. To support this effort, CBCMA provided a realtist training and certification course through CRA. Monique Winston, president of the CRA, had this to say about CBCMA’s training course:

 

“I have received nothing but amazingly positive feedback from those who attended the Chenoa [CBCMA] certification sponsored by the Cleveland Realtist Association (a division of the National Association of Real Estate Brokers—NAREB). The response was so encouraging that we added a second class, and word quickly spread among chapters throughout Ohio and other states, such as New Jersey. It far exceeded my expectations.”

 

Mark Williams, a branch manager at CrossCountry Mortgage, attended one of these trainings and had the following comment:

“As a lender who has used this program, I’m extremely pleased with the training. This training was informative and very useful in learning about various products available through Chenoa. Through this program, I was able to save several purchases for clients that otherwise would not have been able to purchase their first home. It is specifically useful for individuals who may not have savings, but have stable employment and responsible spending habits. Our clients are grateful for the assistance you offer.”

 

To further support these realtist, CBCMA offers the following to all realtist trained through its program:

  • Free custom marketing 
  • Direct account representative available to answer borrower questions 
  • Account highlighted and marketed as a realtist, CRA- and CBCMA-trained
  • Borrower leads 
  • Priority of company news and updates

 

This realtist training program is still available; schedule your CRA realtist certification with Chenoa Fund through realtor@chenoafund.org.

 

The Cleveland Realtist Association’s vision goes forth boldly with certified realtists armed with knowledge and a passion for their communities. To learn more about the Cleveland Realtist Association, NAREB, and their shared mission, visit https://www.clevelandrealtist.org/. There you can find the dates of future seminars and become a member.

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Chenoa Fund

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