Freddie Mac is turning to a higher power to help convert more renters into homeowners.
As part of a broader effort to attract more potential borrowers to its 3% down payment home loan product, the government-sponsored enterprise is reaching out to faith-based organizations to help preach the gospel of homeownership — particularly to low- and moderate-income families who may think that owning a home is out of their reach.
"When we think about communities that we're trying to access and the distrust of homeownership as a whole, it's very important that the message of this opportunity be channeled through trusted advisers," said Danny Gardner, Freddie's vice president of affordable lending and access to credit.
Before the financial crisis, it was common for Freddie Mac to partner with faith-based groups and housing finance agencies, but many of those organizations refocused on foreclosure prevention after the crisis. Now Freddie is working to rebuild those relationships as it redoubles its efforts to make home ownership more affordable.
Rising home prices, stagnant wages, rent inflation and student debt remain have made it difficult for potential homebuyers to save for down payments. Even with interest rates at record lows, the U.S. homeownership rate dipped in the third quarter to 63.7% and is near its 20-year low, according to Census Bureau data.
Freddie began marketing its 3% down payment program earlier this year and hired Gardner, a former vice president at Capital One focused on Community Reinvestment Act business development and multicultural lending, to oversee it. Gardner had spent five years as the chief operating officer of the nonprofit National Community Stabilization Trust, which helps support the purchase and rehabilitation of foreclosed and abandoned properties.
A key initiative Freddie has undertaken is educating lenders about programs offered by housing finance agencies. For example, lenders may not know that potential borrowers can use 100% of the gift funds from a housing finance agency to cover the cost of the 3% down payment, so Freddie is working with lenders to match them with nonprofits offering such grants. Banks that partner with nonprofits on such loans would be eligible to receive Community Reinvestment Act credit, Gardner said.
Freddie also recently announced a partnership with Quicken Loans, the second-largest U.S. home lender, to co-develop products for millennials, first-time homebuyers and middle-class borrowers.
"All lenders are trying to expand," said Gardner. "So we really need to try to build muscle in the industry to access these new emerging communities because that's where the business is coming from."
Logan Mohtashami, a senior loan officer at AMC Lending Group, a Laguna Beach, Calif., mortgage lender, said it makes sense for Freddie to team up with a direct-to-consumer lender like Quicken in an attempt to reach more borrowers.
"Everyone is gearing up for the waves of demographics of younger homebuyers, so you want to get into the places where you have the most reach," Mohtashami said.
To appeal to nontraditional homebuyers, Freddie and Fannie Mae, which launched its own 3% down payment product last year, have eased some home loan requirements and now allow income from non-borrower household members to be included in debt-to-income calculations. Income the borrower collects from rent can also count toward his or her qualifying income. The GSE programs require full income documentation and homeowner education.
Chris Boyle, Freddie's senior vice president of single family sales and relationship management, said plenty of consumers are qualified to own a home — but they may not know it.
"We do think there's a market out there that is not coming to the fore and millennials is one group," Boyle said. "There are those that are qualified and can responsibly take on homeownership that aren't coming to the table."
That may also be true in lower-income communities, and that's where partnerships with faith-based groups could come in. The effort, which is just getting underway, will include financial education seminars and counseling sessions hosted by faith-based groups using materials provided by Freddie.
"Especially in communities of color, in Hispanic and African-American communities, it's the churches that are deemed trustworthy," Gardner said.