Portland Example: First Time Homebuyer Income Required to Qualify for a FHA Oregon Bond Loan Could Be Reduced by Up to 22% Using FHA Compensating Factors.

There are a wide variety of measures that are used to determine homeownership affordability. Those measures can include down payment assumptions, loan rate assumptions, home price assumptions, and allowable debt to income ratio assumptions. 

However I don't recall seeing any projections of the income required to purchase a home that use compensating factors as part of the debt to income analysis. Compensating factors allow applicants to qualify for larger loans than they would qualify for using standard housing debt and total debt to income ratios of 31% for housing expenses and 43% for all reoccurring expenses.

I'm most familiar with FHA lending so my examples will focus on FHA compensating factors. but  I'm sure that other loan programs also have their versions of compensating factors. 

Pre COVID 2019 HMDA Data Shows That the MAJORITY of Oregon FHA Home Purchase Borrowers Had Debt to Income Ratios of 44% or Higher.

In Oregon my review of 2019 HMDA data shows that 52% of FHA home purchase first lien loans originated had debt to income ratios of 44% or higher. (4,404 FHA home purchase first lien loans where DTI was reported at 44% or higher/7,922 total FHA first lien home purchase loans where DTI was known=52%). 

I also looked at Oregon 2019 HMDA data for FHA first lien home purchase loan originations to Hispanic, Black, and Asian borrowers. Their share of FHA first lien home purchase loans originated where DTI was 44% or higher was 66%, 67%, and 67% respectively.

[The link HERE will download the 2019 HMDA Oregon data for your review and further analysis]. 

FHA Compensating Factor Guidance

FHA's Single Family Policy Handbook 4000.1 includes a matrix of manual underwriting compensating factors that can be used to increase the percentage of income that can be used to qualify for an FHA loan.

The table pasted below (from handbook printed page 335) lists those factors that can be used to increase the amount of income used to qualify an applicant for an FHA loan:

A Portland  First Time Homebuyer Metro Example. 

I took the information from that table and applied it to an example I created for the Portland metro area for first time homebuyers. The PDF table I created is HERE and embedded below.

For the Portland metro area I created four scenarios shown in the PDF; a description of the compensating factors required for each scenario at at the top of each column:  

1. All scenarios assume a credit rating of 580 or more. This is, by itself, a compensating factor.
2. All use the current OHCS non targeted area Portland metro maximum purchase price of $453,000, the 2.25% current "cash advantage" interest rate for the Oregon Bond program, and a 3.5%/$15,855 down payment. All scenarios are fixed rate 30 year loans. Note that these terms are generally available only to first time home buyers. There are some exceptions for veterans and also for purchasers of property in targeted areas.  
3. The one time 1.75%/$7,650 FHA upfront mortgage insurance premium is included in the amount financed and the monthly MIP expense is .85%/$310.
4. Monthly property taxes and insurance and homeowners association expenses are estimated at 1.3%  of the purchase price divided by 12. ($491 per month).
5. Total monthly housing expense is $2,387.
6. Monthly non-housing reoccurring debt is assumed at $300 per month except for the 4th scenario where it is zero.
7. None of the scenarios factor in any boost for energy efficient homes, which could add 2% to the front and back ratios. My read is that these factors may only be available for scenarios 1 and 2.

Observations:

1. Using standard FHA underwriting ratios of 31%/43% in the first scenario the applicant would need $96,800 in annual income.
2. Scenario 2 requires only one compensating factor out of three possibilities and would decrease required income to $81,200 and increase allowable underwriting ratios to 37%/47%.
3. In scenario 3 there is an $75,100 income requirement but the applicant must meet at least two of these three compensating factors. The $75,100 income requirement is 22%/$21,700 less than in the first standard scenario. The underwriting ratios for this scenario are further increased to 40%/50%.
4. In scenario 4 (with only ONE required factor--no monthly recurring debt) the annual income required is also $75,100. using underwriting ratios of 40%/40%.
5. Using HUD's 4 person MFI for the Portland metro area of $96,900, 

Scenario 1 requires an income of $96,800---100% of MFI, 
Scenario 2 requires an income of $81,200--84% of HUD MFI, and 
Scenarios 3 and 4 require an income of $75,100--78% of HUD MFI.

NOTE: Use of a higher down payment would reduce monthly housing costs and reduce the income required to qualify in all scenarios, but poses a challenge for first time home buyers since it would also increase the cash required to close the loan.

Caveats:

1. The guidance cited above applies to manual loan underwriting. I do not know the extent to which these specific factors are modified or incorporated in the automated underwriting systems.  However given the large share of loans with DTI of 44% and higher it seems highly like that FHA approved automated credit scoring systems DO use credit scores and other factors in issuing loan approval decisions for loans with DTI at 44% and above. 
2. Lenders are free to adopt more restrictive standards than found in the handbook.  
3. I used the more restrictive income income limit of the two limits in each scenario rounded up to the next higher $100. 
4. The documentation required for each compensating factor can be found starting on PDF page 351 of the 40001.1 handbook.  
5. I used the latest version of the handbook, which is effective in August; I don't see any substantive changes in the compensating factors from those used in the current Handbook.

Originally created and posted on the Oregon Housing Blog.

Test Embed of Excel File in the Cloud: GSE CY 2010 Oregon Hispanic Loans by County.

I am pasting below one of the worksheets from the GSE Excel workbook that I posted yesterday.  This worksheet shows GSE Hispanic loans in Oregon for CY 2010, by county and by loan purpose. 

The embed is from file I have posted to MS cloud service (Windows Live SkyDrive).

In addition to being able to view the Excel file in this post in your browser

• You can use the scroll bars to see columns/rows not initially visible. 
• Also note that at the very bottom of the embed you also have the option to download the actual Excel file with this worksheet or to open it full size in your browser. 

Being able to view/download Excel files in their original formats within a blog post/browser is a clear demonstration of how "the cloud" can be creatively integrated with our current desktop applications. Being able to "Save As" a file into the cloud should reduce the need to send files as email attachments and expand the ability to share and collaborate with others.

Note: A direct link to this file is HERE. 

I am still very much in a learning curve in using this new capability; would appreciate any feedback on your experience in viewing and downloading this Excel file.

Originally created and posted on the Oregon Housing Blog. 

Cinco de Mayo Special: Loan Level Details for $53 Billion in GSE CY 2010 Hispanic Loans.

From the GSE CY 2010 MS Access databases I previously created with by fellow retired former HUD Oregon Field Office Director Roberta Ando, I have created a new Excel workbook. 

It has loan level details for more than 253,000+ loans to Hispanic borrowers OR co-borrowers that were purchased by Fannie Mae and Freddie Mac (aka "The GSE's) during CY 2010. (Shameless blog promotion: I am sure you will not find this anywhere else):

That Excel workbook is posted in a Spider Oak web folder with all the other [large] Excel GSE CY 2010 files I created.

Included are the following 8 worksheets

1. OR Hispanic Summary 2010 (Summary at the County Level).
2. OR Hispanic Pivot 2010 (Default view is county, by income grouping).
3. OR Hispanic 2010 Data.(Used for Pivot)
4. US Hispanic Summary 2010 (State level summary, includes separate First Time home buyer state summary).
5. US Hispanic Pivot Table 2010 (Default view is count of all Hispanic loans by state).
6. US Hispanic Data 2010. (Used for Pivot).
7. Lookups (for selected fields).
8. Field Listing and Link to Data Dictionary for all fields.

How to Download Excel GSE Workbooks: 
Go to the GSE CY 2010 Excel Files  link in the right pane of my blog and within the folder look for GSE Loans Excel Workbook 5 All Hispanic GSE 2010 Loans.This is a large 100 MB file, so don't download it unless you plan on using it....
The initial view of this folder/web page will allow you to click on the “download” radio button to the right to download both databases and a “READ ME” files as a compressed  zip file [ I DO NOT recommend this method as I encounter errors in the size of the downloaded file and in trying to open the file].
INSTEAD I recommend that you 
A. Left click on the folder name on the left side of the page  to open the folder and look for the file name that is of interest to you [I would select the READ ME file first].  For Hispanic data look for GSE Loans Excel Workbook 5 All Hispanic GSE 2010 Loans
B. Then on the right side of the web page, left click the “download” radio button for each file to download that file in an uncompressed format. After downloading the file(s), navigate to the directory where you downloaded the file and double click the file to open.

Note: Tables from  worksheet 4 above have also been added as Tables 11 and 12 in the PDF file , Picture of GSE Assisted Households, CY 2010 in the right pane. 

US GSE Loans to Hispanic Borrowers or Co-Borrowers

1. There were nearly $5.9 billion in loans made to 29,000+ first time home buyers.
2. There were nearly $53 Billion in loans made to 253,000+ homeowners/home buyers.

Oregon GSE Loans to Hispanic Borrowers or Co-Borrowers

1. There were $37.8 million loans made to 194 first time borrowers.
2. There were more than $513 million in total loans made to nearly 2,673 homeowners/home buyers.

More Analysis?

• You can make comparisons of Hispanic Loans to all loans at state levels by looking at Table 1 (page 2) in the Picture of GSE Assisted Households CY 2010 PDF file previously posted HERE. 
• For Oregon comparisons, you can compare loan level data down to the Census Tract level using the previously posted GSE Loans Excel Workbook 1 All Oregon GSE Loans loans posted within the folder HERE]. 

Originally created and posted on the Oregon Housing Blog

Metro Portland Scores Well on Urban Institute Black and Hispanic Equity Ratings/ Rankings; Higher than Metro Seattle.

The Urban Insitute has put up new map/scorecard HERE of 100 largest metro areas that provides data and rankings on black/white and hispanic/white equity.  

Portland ranks and ratings:

• Black/White Equity: Ranking, 19th; Score A
• Hispanic/White Equity: Ranking, 32nd; Score B

Seattle Ranks and Ratings

• Black/White Equity: Ranking, 39th; Score B
• Hispanic/White Equity: Ranking, 33rd; Score B

I have prepared a breakout of ALL Portland AND  Seattle Metro values, ratings and rankings in a PDF file HERE.

Rating Data include:

Residential Segregation: Dissimilarity index

Neighborhood Income Gap: Percent difference between the median income of the average non-Hispanic white’s neighborhood and that of the average black or Latino. 

School Test Score Gap: Percent difference between the state test score ranking of the school attended by the average non-Hispanic white student and that of the school attended by the average black or Latino student. 

Employment Gap: Percent difference between the share of working-age non-Hispanic whites who are employed and the corresponding share of blacks or Latinos, 

Homeownership Gap: Percent difference between the share of non-Hispanic white households that are homeowners and the corresponding share of black or Latino households

Grading Scale: Each statistic is scaled by its average and given an equal weight, and then all statistics are summed into a final measure. Each metro is assigned a rank based on this measure and then fit into the following grading scale: A=Best 20, B=21-40, C=41-60, D=61-80, F=Worst 20.

Originally created and posted on the Oregon Housing Blog.

Draft Comparison: 2010 vs 2000 Oregon Homeownership Rates/Gaps--Some Progress But Not for African Americans/ Native Hawiian/ Pac Islanders.

After an alert reader provided a link to a Salem Statesman Journal story HERE about an increase in the Oregon Hispanic home ownership rate, I decided to do a quick comparison between 2010 and 2000 Census Oregon home ownership rates.

I am hopeful that someone else will check data from Census to confirm my calculations, but for now my DRAFT comparison is HERE in a two page PDF table. 

The table shows that in Oregon :

1. Overall home ownership rates decreased by 3.2%. 
2. White non Hispanic HO rates decreased by 2.6%
3. African American HO rates decreased significantly by 12.1% [In a decade my calculations are that Oregon added only a net increase of 813 African American homeowners].
4. Native Hawaiian and Pac Islander HO rates also decreased by 4.5%
5. American Indian and Alaska Native HO rates decreased by 1.6%
6. Asian HO rates increased significantly by 11.8%
7. Hispanic HO rates also increased significantly by 8.9%.
8. Except for Asians, minority HO gaps in 2010 remain high, and those gaps actually increased for both African Americans and for Native Hawaiians and Pacific Islanders. 
9. Finally, as I have noted previously Oregon add 10,000 more rental households than owner occupied households in the last decade. (97,000 vs 87,000). Moreover, the rate of growth of rental households was double the rate of growth of home owner households (20% vs. 10%).

Originally created and posted on the Oregon Housing Blog.

Draft Census 2010 Oregon HO Rate Data by Race, Ethnicity Does NOT Look Good.

I have taken a first look at the Census 2010 homeownership data for Oregon and it does not look good. 

With caveat that this is a DRAFT, my quick state level analysis is HERE.  Draft indicates:

1. An African American home ownership rate of 32.9%
2. A Hispanic home ownership rate of 40.2%. 
3. I don't have data readily available, but both African American and Hispanic home ownership rates appear to be significant declines from Oregon 2000 rates.
4. To reach the White, non Hispanic home ownership rate the Oregon African American home ownership rate would have to increase by 98.1%, and the Hispanic Home ownership rate would have to increase by 62%. [This is shown as "Gap"[s] in the bottom rows of the table].

If you see any errors, please send me an email or add a comment below 

Time permitting I will review this draft, make any corrections, and later publish similar data for all Oregon counties, places, and census tracts. 

Originally created and posted on the Oregon Housing Blog.

Corrected: Oregon Hispanic Pop Data, 2010 Census: Under 18 Hispanic Pop % Approaches Double Overall %--Data to CT and School District Level.

Correction: Under 18 Hispanic statewide % corrected in text below to match table and read "20.8%", NOT 22.8%. 
-----
I have constructed a new PDF table that includes select Census 2010 population data for several Oregon geographic areas:

• The state
• All Oregon counties
• All Oregon places
• All Oregon Census Tracts
• All Oregon School Districts.

Selected population data includes:

• Total population.
• Total population 18 and over.
• Total population under 18.
• Same population breakouts for Hispanics
• Share of population (total, 18 and over, and under 18) for Hispanics.

To help navigate through the 58 page PDF file I constructed HERE, you will find bookmarks to data for counties, places, census tracts, and school districts.  

Some observations:

1. Statewide, the Hispanic share of the total population is 11.7%; but for those under 18 the Hispanic share grows to 20.8 %. The under age 18 Hispanic share is 177% of the total Hispanic population share.
2. The City of Portland Hispanic share of total population is 9.4%, but for those under age 18, the Hispanic share is 17.5 %. [I.E. the City of Portland Hispanic share of population, over and under 18, is less than the statewide average].
3. In Hillsboro the Hispanic share of total population is 22.6%, but for the population under age 18 the Hispanic share increases to 33.8%.  
4. Hispanics in Cornelius represented 50.1% of the total population and 63.2% of the under 18 population. 
5. The area of the state that had the HIGHEST Hispanic share of the under age 18 population (84%) was a Washington County census tract (324.09) [includes only those areas with a under age 18 population of at least 1,000]. 
6. Readers may recall that my earlier post HERE pointed out that without minority growth in under age 18 population, Oregon's total under 18 population would have DECLINED from 2000-2010 (because the number of under age 18 whites declined from 2000-2010). 

55 Geographic Areas With Below Age 18 Population of At Least 1,000 AND Hispanic Under Age 18 Population Share of 50% or Higher:

The ranked table I prepared below shows the 55 geographies in Oregon that I identified that had A. A population below age 18 of at LEAST 1,000 AND B. An Hispanic under 18 population share of 50% or higher:

Area	Type	Under 18 Population	Under 18 Hispanic Population	Hispanic Share of Under 18 Population
Census Tract 324.09, Washington	Census Tract	1,959	1,651	84%
Census Tract 103.04, Marion	Census Tract	2,403	1,986	83%
Census Tract 103.06, Marion	Census Tract	2,967	2,321	78%
Woodburn city	Place	7,442	5,767	77%
Census Tract 9704, Malheur	Census Tract	1,863	1,407	76%
Woodburn School District 103	School District	8,286	6,159	74%
Census Tract 103.05, Marion	Census Tract	1,475	1,086	74%
Nyssa city	Place	1,126	828	74%
Boardman city	Place	1,129	816	72%
Census Tract 5.02, Marion	Census Tract	1,778	1,230	69%
Census Tract 16.02, Marion	Census Tract	2,972	2,036	69%
Census Tract 329.02, Washington	Census Tract	2,393	1,612	67%
Census Tract 9504, Hood River	Census Tract	1,576	1,048	66%
Census Tract 103.03, Marion	Census Tract	1,572	1,026	65%
Umatilla city	Place	1,801	1,164	65%
Census Tract 324.10, Washington	Census Tract	1,224	782	64%
Cornelius city	Place	3,903	2,466	63%
Census Tract 17.01, Marion	Census Tract	1,946	1,229	63%
Ontario city	Place	3,289	2,076	63%
Census Tract 9705, Malheur	Census Tract	1,631	1,016	62%
Umatilla School District 6	School District	2,066	1,273	62%
Nyssa School District 26	School District	1,638	1,009	62%
Milton-Freewater city	Place	2,145	1,304	61%
Census Tract 332, Washington	Census Tract	1,586	963	61%
Census Tract 9502, Umatilla	Census Tract	2,321	1,393	60%
Census Tract 7.01, Marion	Census Tract	1,585	948	60%
Census Tract 9602.01, Jefferson	Census Tract	1,041	619	59%
Hayesville CDP	Place	5,786	3,416	59%
Census Tract 103.07, Marion	Census Tract	1,069	631	59%
Census Tract 5.01, Marion	Census Tract	1,255	737	59%
Census Tract 17.02, Marion	Census Tract	1,719	991	58%
Census Tract 16.04, Marion	Census Tract	2,428	1,389	57%
Census Tract 320.05, Washington	Census Tract	1,218	696	57%
Gervais School District 1	School District	1,887	1,073	57%
Ontario School District 8	School District	4,430	2,514	57%
Census Tract 9701, Morrow	Census Tract	2,463	1,390	56%
Census Tract 18.01, Marion	Census Tract	1,842	1,030	56%
Census Tract 310.05, Washington	Census Tract	1,490	833	56%
Census Tract 9508, Umatilla	Census Tract	1,873	1,028	55%
Madras city	Place	1,862	1,016	55%
Census Tract 229.07, Clackamas	Census Tract	1,382	754	55%
Wood Village city	Place	1,250	681	54%
Census Tract 9509, Umatilla	Census Tract	1,279	688	54%
Census Tract 4, Marion	Census Tract	1,527	820	54%
Census Tract 312, Washington	Census Tract	1,738	928	53%
Census Tract 329.01, Washington	Census Tract	1,747	920	53%
Census Tract 103.04, Multnomah	Census Tract	1,553	803	52%
Four Corners CDP	Place	4,741	2,440	51%
Census Tract 15.03, Marion	Census Tract	1,695	872	51%
Census Tract 9510, Umatilla	Census Tract	1,969	1,010	51%
Census Tract 98.01, Multnomah	Census Tract	1,453	745	51%
Independence city	Place	2,623	1,321	50%
Milton-Freewater School District 7	School District	3,199	1,598	50%
Malheur	County	8,004	3,995	50%
Census Tract 326.06, Washington	Census Tract	1,813	904	50%

Originally created and posted on the Oregon Housing Blog.

Oregon Census 2010 WOWS: Growth in Under 18 Population Was ALL Minorities.

Media outlets in Oregon are picking up good Census 2010 stories; Oregonian 2010 coverage is HERE for example. 

I hope that these outlets pick up/confirm a quick analysis that I did this morning. 

IF my math is correct, the total under 18 population in Oregon would have DROPPED, except for the growth in minorities under 18, and especially Hispanics under 18.   

Table pasted below has the data. The "WOWS" I think are that:

1. Total under 18 population growth was less than 20,000,  a growth rate of only 2.4 %
2. The White, NON Hispanic under 18 population DECLINED by 73,000, 11.3%.
3. The Hispanic under 18 population increased by 72,000, 67.3%.
4. Other minority group under 18 populations increased by 8,000, 15%. 
5. While calculation is not shown in table, I calculate that the Non White Hispanic share of under 18 population dropped from 76% to 66% from 2000 to 2010. 
6. BOTTOM LINE: Without minority under 18 population growth, Oregon's under 18 population would have DECLINED. 

Click to Enlarge

IF you see any errors in my calculations, please DO let me know. 

Originally created and posted on the Oregon Housing Blog.