ThirdParty
Lending
What is a zero
equivalent
mortgage?
Is a ZEM program
a good fit for my
affiliate?
Zero
Equivalent
Mortgage
We build strength, stability and self-reliance through shelter.
Zero Equivalent Mortgage Program
•
Affiliate collaborates with a third-party lender that provides the mortgage
loan to the homebuyer.
•
The lender charges the homebuyer a below-market rate of interest, but
the monthly payments for the family are the same as if a Habitat affiliate
was providing a zero-percent loan directly to the homebuyer.
•
This mortgage option by the lender reduces the principal of the loan to a
level that produces equivalent monthly payments.
•
Mortgage is held by a government or private entity. When partnering
with a third-party financier, Habitat for Humanity affiliates must retain the
right to intervene if any borrower encounters difficulty in making monthly
mortgage payments.
SONYMA (State of New York Mortgage Agency)
& Zero Equivalent Mortgages
•
•
•
•
Affiliate selects family and builds homes in standard
fashion.
SONYMA recruits market rate financing from banks and
lenders and agrees to pre-pay a portion of the interest on
that financing, reducing the interest rate to ~2%.
Affiliate “discounts” the sale price of the home to a level
where the monthly payments on a 2%, 30-year loan are
equal to the payments on the full price of the home with a
0% loan.
SONYMA services the loan/Affiliate retains right to
intervene, and maintains the right to buy back the loan if
loan goes into default.
Sample Calculation
• Sales price is
established at $80,000.
• Calculation determines
that payments of
$80,000 loan at 0% are
equivalent to payments
of $61,000 loan at 2%
interest.
• Homeowner signs
$61,000 mortgage at
2% with SONYMA;
Affiliate receives check
for $61,000 at closing.
Zero Equivalent Mortgage Calculator
Habitat Mortgage Present Value Calculator
Inputs
Mortgage Amount
$115,000
Term in Years
30
Discount Rate
3.3%
Results
Monthly payments
Present Value
PV as % of mortgage
*Assumes standard 0% rate on mortgage
$319.44
$73,400.69
63.83%
USDA RURAL DEVELOPMENT
SINGLE FAMILY HOUSING INFORMATION SESSION
www.rurdev.usda.gov/pa
Thomas P Williams, State Director
Mission Statement: “Enhance the ability of rural communities
to develop, to grow, and to improve their quality of life by
targeting financial and technical resources in areas of greatest
need through activities of greatest potential.”
USDA RURAL DEVELOPMENT
SINGLE FAMILY HOUSING INFORMATION SESSION
Topics that will be covered:
 502 Direct Loan Program
 504 Home Repair Program
 502 Guaranteed Loan Program
DIRECT PROGRAM:
Purpose:
To provide low-income individuals or households the opportunity to buy or build a
decent, safe, and sanitary dwelling.
• Low income is <80% of moderate household income (MHI)
• Very low income is <50% of MHI for county
DIRECT PROGRAM:
•Applicants must:
•Be without decent, safe and sanitary housing
•Agree to occupy the primary as your primary residence
•Meet citizenship or eligible noncitizen requirements
DIRECT PROGRAM:
100% financing based on appraised value
DIRECT PROGRAM:
Properties financed with direct loan funds must:
• Generally be 1,800 square feet or less
• Not have market value in excess of the applicable area
loan limit
• Not have in-ground swimming pools
• Not be designed for income producing activities
DIRECT PROGRAM:
Subsidized Loans
•Payment rate as low as 1%
•Borrowers can receive subsidy for life of loan
•Borrower’s financial position reviewed every 2 years
13
DIRECT PROGRAM:
Only one time $25.00 credit fee
•No mortgage insurance, funding fee,
organization fee or administration fee
DIRECT PROGRAM:
CREDIT
No score required
 Credit score of 640+ =fast track
(If no bankruptcy, foreclosure, federal unsatisfied
judgments or liens)
DIRECT PROGRAM:
CREDIT
If credit score is below 640, we can look at 3 trade lines
• Trade lines have to be open and active for at least 12
months
• Do not need to be recent
DIRECT PROGRAM:
Interest Rate/Payback Period
Interest Rate
•Fixed interest rate based on current market rates at loan approval or loan
closing
•Whichever is lower
•Currently at 3%
Payback Period
• 33 year payback period
• 38 year payback for very low applicants
DIRECT PROGRAM:
 Loans are assumable
Same rate/terms available for qualified
borrowers
Limited qualification requirements
18
DIRECT PROGRAM:
How to Apply : 1st Step
DIRECT PROGRAM:
LOAN APPLICATION PACKAGERS
A loan application packager, who has real estate and/or
mortgage experience, may submit a complete loan
application package on behalf of an applicant.
A packager may be a nonprofit or for-profit individual or
organization.
REPAIR PROGRAM:
PURPOSE: TO PROVIDE LOANS TO HOMEOWNERS TO REPAIR,
IMPROVE, OR MODERNIZE THEIR HOMES OR PROVIDE GRANTS
TO ELDERLY VERY-LOW INCOME HOMEOWNERS TO REMOVE
HEALTH AND SAFETY HAZARDS.
REPAIR PROGRAM:
Loans
• For repairs to improve or modernize a home.
• Make it safer or more sanitary, or remove health and safety issues.
• Pay connection fees for public water and/or sewer.
• 1% interest rate, 20 years, maximum outstanding balance of $20,000.
Grants
• For homeowners 62 and over who cannot repay a loan, grant funds are
available to remove health or safety hazards, or remodel dwellings to make
them accessible to household members with disabilities.
• $7,500 maximum lifetime grant.
GUARANTEED PROGRAM:
Purpose:
To assist low and moderate income
(115% of median income) applicants
to purchase new or existing homes.
This is made possible by the
guarantee of loans made by
conventional lenders.
Homebuyers make application directly
with the participating lender.
GUARANTEED PROGRAM:
MAJOR ADVANTAGES
•Partner with private sector lenders
•Can combine GRH with PHFA
•Not limited to 1st time home buyers
•No cap on purchase price
•102.75% pf appraised value can include repairs and rehab
•Reasonable allowances for applicants with less than 12 months at current
employer
•(Ex: Remains in the same line of work, recent graduate or member of the
military, re-entering the workforce after an absence to care of a family member,
medical illness or other reasonable circumstance)
•Non-Taxable Income (child support, social security, etc.) can be grossed up
125% for repayment income purposes
•Deferred/Non-Fixed Payment Student Loans- Use only 1% of the outstanding
loan balance
GUARANTEED PROGRAM:
Eligible Loan Purposes:
•
•
•
•
•
Purchase a new or existing single-family dwelling.
Refinance existing GRH loans
New construction must comply with applicable building codes.
Must meet property standards of HUD Handbook 4000.1
Home must be located in an eligible area.
ADDITIONAL RESOURCES
PA RD Website
http://www.rd.usda.gov/pa
Housing Handbooks
http://www.rd.usda.gov/publications/regulations-guidelines
27
CONTACTS:
Direct Loan Program:
Rebecca Watkins (717) 237-2271
Guaranteed Loan Program:
General Hotline (717) 237-2186
Home Repair Program:
Heather Bloom (724) 482-4800 x110
28
ThirdParty
Lending
THIRD-PARTY LENDING/FINANCING
The use of a lender other than a Habitat affiliate for the
purchase/sale of a Habitat-built house
• Zero-equivalent mortgage
• USDA Rural Development Housing 502 Program
• Interest-bearing mortgages through traditional lenders
HABITAT INTERNATIONAL
Habitat for Humanity International is providing guidance to affiliates who wish to craft their own third-party
lending programs, with certain limitations, through their Expanded Testing of Third-Party Financing.
More information is available on my.habitat.org. “Start with the Third Party Financing Readiness Guide.”
HfHI Guidelines
• Only fully regulated and licensed financial institutions may be included in any third party financing program.
Most common examples include commercial banks, thrifts, credit unions, CDFI’s, and state housing finance
agencies.
• Affordability to the buyer is a paramount consideration. Therefore, the first mortgage loan and the full
financing package must be sized so as not to exceed industry standard front-end and back-end ratio
requirements as described in the new Mortgage Origination Policy (Policy 23, effective July 1, 2015).
• Affiliates should avoid loan products with “non-traditional” features or terms. Loans may be interest bearing,
but the rate must be fixed. Features such as adjustable rate mortgages, balloon payments, negative
amortization, and interest only loans are prohibited. Consistent with Habitat policy, it is strongly recommended
that the term of the first mortgage not be more than 30 years, and in no event may the term be more than 40
years.
• Due to the current structure of the Self Help Homeownership Opportunity Program (SHOP), houses that use
SHOP funds are ineligible for third party direct loans.
THIRD-PARTY LENDING OPPORTUNITIES
• Increased number and income range of households served
• Preservation of a “Hand Up, Not a Hand Out”
• Increased sustainability and affordability of housing stock
• For multi-unit builds: mixed-income communities
• Added financial stability to the affiliate, especially during
economic downturns
OUR THIRD-PARTY LENDING HISTORY
Habitat Bucks has offered a Third-Party Lending option to
certain buyers since 2002. The opportunity was borne
out of necessity when a non-profit partner of our large
townhouse community backed out of the partnership.
HOW IT WORKS:
Eligibility is determined by a household’s gross annual income.
• Traditional Habitat financing: income between 40%-60% MFI
• Third-party financing: income between 60% - 80% MFI
Family
Size
Tier One
Minimum
Tier One Maximum/
Tier Two Minimum
Tier Two
Maximum
1
22,500
33,730
45,000
2
25,700
38,540
51,400
3
28,900
43,360
57,850
4
32,100
48,180
64,250
5
34,700
52,030
69,400
6
37,250
55,890
74,550
7
39,850
59,740
79,700
8
42,400
63,600
84,850
2016 Income Guidelines based on Median Family Income of $80,300
Effective March 28, 2016
HOW IT WORKS:
• Financing models (and house costs) are pre-set by the affiliate
prior to each house’s being offered to the community.
*PITI based on full-value of home, using current & projected interest rates
• Applicants are screened based on mortgage-industry standards:
• Housing Ratio: 30%
• Debt-To-Income Ratio: 42%
• Satisfactory Credit History (Credit Scores: 600 and above)
*We are fully compliant with Equal Housing & Equal Lending Laws
FAMILY PARTNERSHIP
Partner families are generally treated the same regardless of the
financing model:
• Selection: follow your affiliate’s standard procedures*
• Program: use current sweat equity policy and educational
components.
*When approving households for the third-party financing
model: make sure your selection process is such that if you say
“yes” to an applicant, a lender will say “yes” for the mortgage.
FINANCIAL CONSIDERATIONS
•
Generally with third-party lending, partner families will have to
cover closing costs and interim taxes on their own.
•
Continued education and preparation is vital.
•
Connect families to available resources.
•
The affiliate will be responsible for the seller’s closing costs.
•
Use of HOME or Housing Trust Funds as second-mortgages is
permitted and are actually seen as “down-payment funds” by
the lenders (thus, avoiding PMI).
LENDER PARTNERSHIP
• Every affiliate should have a Selection Review Guide/Standard
to share with lenders that shows the full selection criteria and
review process that outlines the use of affordability ratios and
credit requirements.
• Most, if not all, lenders have First-Time Homebuyer Programs
that are excellent products for Habitat partner families.
LENDER CASE STUDY
Penn Community Bank
• Virginia “Pixie” Bachtell, AVP/Residential Loan Officer
• Bank’s partnership with Habitat has existed since 2002
•
• Habitat partnership includes mortgage application discounts for
the buyers:
•
•
Penn Community Bank currently waives about $750 in closing fees for Habitat
customers, charges no points and allows a lower credit score than would
normally be acceptable.
•
• Access to First Front Door Program (www.firstfrontdoor.com)
PENN COMMUNITY BANK PARTNERSHIP
Good for the FAMILY
• Rate
• Fees
• Stability
• Security
PENN COMMUNITY BANK PARTNERSHIP
Good for the COMMUNITY
• Taxable Housing Unit
• Stable Unit for Estimating Services
PENN COMMUNITY BANK PARTNERSHIP
Good for the BANK
• New loan
• New customer
• CRA credit
(Community Reinvestment Act)
The CRA credit is very attractive,
particularly to a “community” bank or a local institution.
OTHER CONSIDERATIONS
Communication is Key
Success Depends on How Information is Shared:
• To your Applicants and Partner Families
• To the Community: Volunteers, Donors, Other Partner Families
• To and With Lenders
On-Going Contact with Homebuyers
• Mortgage monitoring is lender’s responsibility, but be available
to offer resources
Questions? Comments?
Stefanie Clark, Family Program Director, Habitat Bucks
(215) 822-2812 x307 - [email protected]
Pixie Bachtell, AVP/Loan Officer, Penn Community Bank
(215) 788-6094 x5316 – [email protected]
We are pledged to the letter and spirit of the U.S. policy for the achievement of equal
housing opportunity throughout the nation. We encourage and support an affirmative
advertising and marketing program in which there are no barriers to obtaining housing
because of race, color, religion, sex, handicap, familial status or national origin.