A Resource for Community Bankers

AFFORDABLE MORTGAGE LENDING GUIDE

A Resource for Community Bankers

Part I: Federal Agencies and Government Sponsored Enterprises Revised July 2018; Freddie Mac revised November 2018

PUBLISHED BY: Federal Deposit Insurance Corporation 550 17th Street, NW, Washington, DC 20429 877-ASK FDIC (877-275-3342)

The Federal Deposit Insurance Corporation (FDIC) does not endorse the programs described in this publication or any particular approach to their use. The overviews and program information included in this Guide are designed to illustrate the broad range of options available to financial institutions. The FDIC has taken measures to ensure that the information and data presented in this publication is accurate and current. However, the FDIC makes no express or implied warranty regarding such information or data, and hereby expressly disclaims all legal liability and responsibility to persons or entities who use or access this publication and its content, based on their reliance on any information or data that is available through this website. Each institution is responsible for assessing whether the resources presented here are appropriate for the bank to pursue given factors such as the institution's existing mortgage, Community Reinvestment Act, or community development strategies, as well as business focus, financial condition, and market.

When citing this publication, please use the following: Affordable Mortgage Lending Guide, Part I: Federal Agencies and Government Sponsored Enterprises (Washington, DC: Federal Deposit Insurance Corporation, 2016; revised 2018), .

AFFORDABLE MORTGAGE LENDING GUIDE

A Resource for Community Bankers

Part I: Federal Agencies and Government Sponsored Enterprises Revised July 2018; Freddie Mac revised November 2018

TABLE OF CONTENTS

About This Publication................................................................................................................. 1 Program Matrix ............................................................................................................................. 4 U.S. Department of Housing and Urban Development (HUD) and Federal Housing Administration (FHA) ..................................................................................... 5

Overview of the Federal Housing Administration .............................................................. 5 Doing Business with FHA ....................................................................................................... 7 Using FHA's Section 203(b) Mortgage Insurance Program: A community banker conversation .....................................................................................11 Title I Programs Property Improvement Loan Insurance ..............................................................................13 Manufactured Home Loan Insurance .................................................................................17 Title II Programs 203(b) Mortgage Insurance Program .................................................................................21 Streamline Refinance ............................................................................................................27 203(k) Rehabilitation Mortgage Insurance ........................................................................31 Other HUD Programs 184 Indian Home Loan Guarantee Program......................................................................35 Good Neighbor Next Door ..................................................................................................41 U.S Department of Agriculture (USDA)...................................................................................45 Overview ................................................................................................................................45 Doing Business with USDA ..................................................................................................46 Using USDA's Single Family Housing Guaranteed Loan Program: A community banker conversation .....................................................................................49 Single Family Housing Guaranteed Loan Program...........................................................51 Single Family Housing Direct Loans ...................................................................................55 Single Family Housing Repair Loans and Grants ..............................................................59 U.S. Department of Veterans Affairs (VA) ...............................................................................65 Overview ................................................................................................................................65 Doing Business with VA .......................................................................................................66 Using VA's Home Purchase Loan Program: A community banker conversation .....................................................................................69 Home Purchase Loan Program ............................................................................................71 Interest Rate Reduction Refinance Loan.............................................................................75

U.S. Department of the Treasury Community Development Financial Institutions Fund (CDFI Fund) .............................................................................79

Overview ................................................................................................................................79 Bank Enterprise Awards .......................................................................................................83 CDFI Program ........................................................................................................................85 Capital Magnet Fund ............................................................................................................89 Fannie Mae..................................................................................................................................93 Overview ................................................................................................................................93 Doing Business with Fannie Mae ........................................................................................94 Duty to Serve..........................................................................................................................96 Using Fannie Mae's HomeReadyTM Mortgage Product: A community banker conversation .................................................................................. 101 HomeReadyTM Mortgage .................................................................................................. 103 Standard 97 Percent Loan-to-Value Mortgage............................................................... 107 HomeStyle? Renovation Mortgage ................................................................................. 111 Standard Manufactured Housing Mortgage .................................................................. 117 MH AdvantageTM................................................................................................................ 123 Refi PlusTM/Home Affordable Refinance Program (HARP)............................................ 127 Freddie Mac ............................................................................................................................. 131 Overview ............................................................................................................................. 131 Doing Business with Freddie Mac.................................................................................... 132 Duty to Serve....................................................................................................................... 133 Using Freddie Mac's Home Possible? Product: A community banker conversation .................................................................................. 137 HomeOneSM......................................................................................................................... 139 Home Possible?.................................................................................................................. 143 Construction Conversion and Renovation Mortgage.................................................... 147 Manufactured Home Mortgage ....................................................................................... 151 Relief RefinanceSM/Home Affordable Refinance Program (HARP)............................... 155 FDIC's Community Affairs Program ...................................................................................... 159 Glossary & Terms ..................................................................................................................... 161

ABOUT THIS PUBLICATION

Economic Inclusion and Opportunity

Mortgage lending is an important element of many community banks' business strategies. Community banks offer mortgage products and services designed to meet the particular needs of their communities, including rural areas and low- and moderate-income (LMI) borrowers. Offering affordable mortgage loans to a wide range of customers deepens bank-customer relationships and provides an important pathway for borrowers to own their own homes and build wealth. At the Federal Deposit Insurance Corporation (FDIC), we recognize that mortgage lending is also an important way for insured institutions to promote access and participation in the mainstream banking system. Broad participation in the products and services offered by insured institutions promotes stability and confidence in the financial system, which is the core mission of the FDIC.

Many banks, including community banks, take advantage of the opportunities to serve the particular mortgage credit needs of their communities. The Affordable Mortgage Lending Guide (Guide) provides information to help make community bankers aware of the wide range of current affordable mortgage products. These programs can be important resources for community banks when properly managed. Bank management should understand the terms of these programs, the risks they pose, and the impact on banks' financial condition to ensure that they are serving their communities with prudently underwritten and affordable mortgage products.

Outreach and Communication

To determine how the FDIC could contribute to efforts by banks to offer prudently underwritten, affordable, and responsible mortgage credit for LMI households, FDIC staff met with community banks individually and in small roundtables. Bankers provided valuable insights into the need for affordable mortgage credit

in the communities they serve. They also discussed the opportunities and obstacles to using federal lending programs, as well as the pros and cons of holding loans in portfolio versus selling loans on the secondary market.

Some bankers described how they have harnessed federal programs, sometimes in combination with other financial mechanisms like Federal Home Loan Bank and State Housing Finance Agency products, to expand their capabilities and serve a broader customer base. Many banks had relationships with neighborhood housing counseling organizations, which helped provide financial education to potential customers.

Some bankers discussed that very small banks do not have specialized staffing or departments to offer complex mortgage products. They decided that the risk and cost of origination were not worth assuming without more resources or additional risk mitigation. Some bankers said that while they want to be involved in mortgage lending, it was difficult to find the time to research potential programs, and that it was challenging to find and retain trained mortgage staff, especially in rural areas.

From these meetings, we concluded that community banks might benefit from a practical reference tool to compare federal programs so they could make an informed decision about which programs might be the right fit for their business plans and strategies to improve lending options available for their communities. In addition, the experience of other lenders that have found ways to use limited resources to harness federal and other resources could provide practical examples that may be instructive to institutions considering these opportunities.

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Scope and Coverage

To assist community banks, the FDIC developed the Affordable Mortgage Lending Guide (Guide), which describes programs from the U.S. Department of Housing and Urban Development (HUD) and its Federal Housing Administration (FHA), the U.S. Department of Agriculture (USDA), the U.S. Department of Veterans Affairs (VA), the U.S. Treasury Department's Community Development Financial Institutions Fund (CDFI Fund), and Fannie Mae and Freddie Mac, known as Government Sponsored Enterprises (GSEs). The Guide focuses on guarantee, loan purchase, and subsidy programs that can facilitate mortgage lending by insured depository institutions. It includes federal programs that support home purchase, refinance, manufactured housing, and some home improvement lending by banks. It covers programs that are targeted to a variety of communities and individuals including rural, Native American, LMI, and veterans.

We discuss the requirements of each program, as well as how to access these programs. Whether you choose to become an agent, a correspondent selling to an aggregator, use a broker, or become an approved seller-servicer, the Guide explains how each of these options work within the particular program. We also discuss underwriting tools available and provide technical information about borrower and loan criteria. This Guide can help you design a process to identify, assist, and support your customers by successfully leveraging these programs.

Suggestions for How to Use This Guide

Organized by each federal agency and GSE, the overviews and individual program descriptions include information about doing business with the agency, its program requirements, and tips on getting started with the program. Institutions can use this Guide as a one-stop resource to gain an overview of a wide variety of program resources, compare different programs, and to help identify the next steps for program participation.

Each program description includes insights into the program's purpose, technical assistance on how to participate, and identifies potential benefits and challenges for community banks.

TIPS ON USING THE AFFORDABLE MORTGAGE LENDING GUIDE

? Review the "Contents" page for a list of all programs.

? Read the overview for the federal agency or GSE of interest to determine loan delivery options and other criteria.

? Read the selected program description for specific borrower and loan standards.

? Review "Similar Programs" at the end of each description to compare program requirements with other products.

? Review "Resources" to make sure you have the most up-to-date information on program criteria.

? Select a program that best suits your needs and use the agency/GSE contact information to get started.

A quick review of borrower and loan criteria will help you identify whether the program is suitable for a particular client or a population that you are trying to serve, such as low- and moderate-income borrowers or other hard-to-reach populations. The descriptions identify particular criteria that focus on target segments, underwriting flexibilities, and other standards.

Each program description includes contact information and web links for easy access to program staff who can provide additional information about the program, guide you through getting started, and address other specific requirements for starting the program at your bank.

In order to compare a range of programs to identify what best meets your needs and the needs of your customers, each program description concludes with a list of similar programs for your reference.

Resources are also included in each program description where you can find web links to more

FDIC | Affordable Mortgage Lending Guide | 2

detailed information about the programs provided by the GSE or agency. Where secondary programs (e.g., Community Seconds?) are mentioned within the main program description, a link to that program is also included in the Resource section. Finally, links for additional information that are referenced in the program descriptions -- such as area/county loan limits, building codes, and lists of high-cost cities and states -- are also included in Resources.

Because borrower and loan criteria, such as income limits, minimum credit scores, loan-to-value limits, and debt-to-income ratios, are all subject to change (and in many cases revised annually), the Guide provides the most recent information available. Realizing the need for accurate and timely information, each program description includes a list of web links where updates can be found.

What Bankers are Saying

In addition to the individual meetings with community banks and small roundtable discussions, the FDIC also talked with community bankers about their participation in specific programs. In each federal agency and GSE "Overview," you will find comments by community bankers who are incorporating federal and GSE programs into their overall mortgage lending strategies. Bankers discuss how they have used these programs to support their business objectives. They also discuss using a variety of delivery options including serving as an approved third-party originator and working with other lenders and investors to underwrite, package and sell loans; acting as a correspondent lender; and becoming an approved seller/ servicer of mortgage loans.

Supporting strong Community Reinvestment Act (CRA) performance

Affordable mortgage lending, including to low-and moderate-income borrowers; to low-and moderate-income census tracts; and to serve people in underserved rural communities, on tribal lands, and in disaster areas can be responsive ways for financial institutions to meet the credit needs of their communities. The mortgage programs featured in this Guide, whether they result in Home Mortgage Disclosure Act (HMDA) reportable loans or originations reported by

another lender, can help lenders reach their business objectives in their communities, as well as contribute to its CRA performance.

Conclusion

The programs outlined in the Affordable Mortgage Lending Guide can provide community bankers with additional pathways to provide homeownership opportunities for creditworthy borrowers in their communities, particularly those with affordability challenges. These programs may also represent business opportunities for community banks looking for prudent, sustainable financial products to incorporate into their mortgage business line.

While home ownership continues to be a goal for most Americans, many people struggle to gain access to affordable homeownership opportunities that will enable them to build a stable future for their families. Community banks can and do play a valuable role in meeting the demand for affordable mortgage credit, and we hope this Guide provides useful information to assist bankers in considering all the options to serve their communities with prudently underwritten and affordable mortgage products.

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