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   ARTICLE   |   From Scotsman Guide Residential Edition   |   June 2016

HFAs Can Play a Bigger Role in Boosting Homeownership

Greater standardization of program guidelines could expand the reach of state-level housing finance agencies

At a Glance

Homebuyer education can be a life-changer

Studies have shown that educating homebuyers about the homeownership process can help to bolster their credit scores and reduce the potential for future loan delinquencies. Topics covered in education courses mandated by housing finance agencies across the country include the following:

  • Homeownership readiness
  • Budgeting and credit
  • Financing a home
  • Shopping for a home
  • Maintaining a home and finances

The U.S. housing market has potential for healthy growth if it can clear three major hurdles faced by potential first-time homebuyers: Income levels have stayed relatively flat, home prices are increasing and projected to continue to rise, and restrictive lending standards are keeping more buyers on the sidelines.

At the end of 2015, 63.8 percent of Americans owned their homes, the lowest level in 30 years. What steps can the industry take to reverse the trend and simplify the home-loan application and approval process?

Part of the answer can be found in the numerous state-sponsored housing finance agency (HFA) programs that work in conjunction with Fannie Mae, Freddie Mac, the Federal Housing Administration and other government-backed lending programs.


HFAs are state-charted authorities set up to address the affordable-housing needs of a state’s residents. The HFAs are generally independent quasi-government entities overseen by a board of directors. They offer a range of affordable-housing and community-focused development programs.

One of the services HFAs provide, for example, is mortgage financing to first-time homebuyers — funded through the sale of tax-exempt mortgage revenue bonds. HFAs work with private-sector lenders, developers, nonprofits and local governments as well to increase affordable-housing opportunities.

Government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac also work with HFAs by purchasing and securitizing housing loans made through the agencies. The GSE participation provides the HFAs with the liquidity needed to finance additional mortgages.

Education first

Many first-time homebuyers have little understanding of what is involved in making what will likely be their largest investment. As a result, to qualify for HFA assistance, first-time borrowers are required to take an education course that provides them with an overview of the responsibilities of homeownership.

Connecticut’s HFA, (the Connecticut Housing Finance Authority, or CHFA), for example, offers homebuyer education courses free of charge via a partnership with some 10 certified counseling agencies statewide. The HFA requires all mortgage applicants to attend, at a minimum, a three-hour preclosing class that offers an overview of the financial and practical facets of the homebuying process. The educational programs required by the various state-sponsored HFAs also are generally a prerequisite to accessing other programs and benefits offered through the agencies, such as the following:

  • Downpayment-assistance programs;
  • Free grants up to $25,000 or more;
  • Closing-cost assistance;
  • Below-market mortgage rates;
  • Mortgage loan forgiveness.

Template needed

Although HFAs have many similar characteristics, each has separate program guidelines and rules. That variation increases dramatically the complexity for lenders in processing HFA-enabled loans. As a result, many mortgage lenders avoid participating in HFA programs, reducing options for borrowers.

Overall, the challenge with every HFA product is trying to understand the wide range of operational and compliance requirements specific to each agency. One option for reducing this complexity would be to create a standardized industry template for all HFA programs. That template would list every aspect of how an HFA program works to allow for comparison and comprehension via a consistent format — including variables such as downpayment options, educational-counseling requirements, income limits and more.

From this template, a lender could quickly determine if an HFA program in one state is similar or identical to other existing programs elsewhere and avoid duplicating or repeating costly and time-consuming research and due-diligence efforts. The template approach would foster a more efficient process and encourage more lenders to work with HFAs, opening up more opportunities for originators and future homebuyers.

There are lenders who may not consider using HFA programs now because of the difficulty of the operational and compliance requirements. By standardizing the product descriptions and making HFA programs nationwide more transparent, the mortgage industry will solve a huge problem and reduce compliance errors and potential regulatory violations that are fostered by HFA program variations and complexity.

The current approach is fractured, with potentially unnecessary new legal documents being created as each new HFA product emerges. Adopting a template-driven standardization model would help each HFA become more transparent and efficient in pursuing the common mission of expanding housing opportunities while also serving as a useful tool for loan originators and in building investor confidence in HFA loan purchases.


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