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Are Millennials Mortgage-Ready?

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Are Millennials Mortgage-Ready?

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Millennials, now the largest living generation, are coming of age and entering those big life moments. College graduations, first jobs, getting married and moving out. But what about home ownership? Do Millennials want to buy real estate? Can they? This presentation reveals new insights pulled from both Experian and Freddie Mac.

Millennials, now the largest living generation, are coming of age and entering those big life moments. College graduations, first jobs, getting married and moving out. But what about home ownership? Do Millennials want to buy real estate? Can they? This presentation reveals new insights pulled from both Experian and Freddie Mac.

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Are Millennials Mortgage-Ready?

  1. 1. ©2016 Experian Information Solutions, Inc. All rights reserved. Experian and the marks used herein are service marks or registered trademarks of Experian Information Solutions, Inc. Other product and company names mentioned herein are the trademarks of their respective owners. No part of this copyrighted work may be reproduced, modified, or distributed in any form or manner without the prior written permission of Experian. Experian Public. Are Millennials Mortgage-Ready?
  2. 2. ©2016 Experian Information Solutions, Inc. All rights reserved. Experian Public. Introducing:  Cindy Waldron Freddie Mac  Renae Sherman Experian
  3. 3. ©2016 Experian Information Solutions, Inc. All rights reserved. Experian Public. 3 Millennial population growth
  4. 4. ©2016 Experian Information Solutions, Inc. All rights reserved. Experian Public. 4 Millennials Millennials Surpassed the Baby Boomer generation in 2015 75M individuals strong 75% say homeownership is a long-term goal 60% have plans to buy a home in the future
  5. 5. ©2016 Experian Information Solutions, Inc. All rights reserved. Experian and the marks used herein are service marks or registered trademarks of Experian Information Solutions, Inc. Other product and company names mentioned herein are the trademarks of their respective owners. No part of this copyrighted work may be reproduced, modified, or distributed in any form or manner without the prior written permission of Experian. Experian Public. Research data overview
  6. 6. ©2016 Experian Information Solutions, Inc. All rights reserved. Experian Public. 6 Research data overview  Obtained 10% sample of Experian File OneSM consumer credit database  VantageScore® 3.0 credit score  Premier AttributesSM v1.2  Income InsightSM and Debt-to-Income InsightSM Matched to Experian ConsumerViewSM marketing database  Age  Education  Individual and household-level demographics Data summary
  7. 7. ©2016 Experian Information Solutions, Inc. All rights reserved. Experian Public. 7 Data summary Mortgage readiness – underwriting criteria: Strong  VantageScore® 3.0 greater than 737  Total DTI < 45% Moderate  VantageScore® 3.0 between 661 and 736  Total DTI < 45% Weak  VantageScore® 3.0 less than 661 AND / OR  Total DTI > 45%  Foreclosure in the past 84 months  Bankruptcy in the past 12 months  Severe delinquency (120-180 DPD) in the past 12 months  No foreclosures in the past 84 months  No bankruptcies in the past 12 months  No severe delinquencies (120-180 DPD) in the past 12 months
  8. 8. ©2016 Experian Information Solutions, Inc. All rights reserved. Experian Public. 8 Data summary 8 Total sample 11,598,718 678 AVERAGE Millennial 30.4% Non- Millennial 69.6% Mortgage readiness 18.3% Strong 13.9% Moderate 30.8% Weak 30.8% Have mortgage trade on file 3% Unscoreable
  9. 9. ©2016 Experian Information Solutions, Inc. All rights reserved. Experian Public. 9 Generational review Gen X Ages 35-51 Baby Boomers Ages 52-70 Silent Ages 71+ Millennials Ages 18-34
  10. 10. ©2016 Experian Information Solutions, Inc. All rights reserved. Experian Public. 10 600 650 700 750 800 850 10 Millennials Ages 18-34 Gen X Ages 35-51 Baby Boomers Ages 52-70 Silent Ages 71+ Average VantageScore 3.0 credit score By generation 713 740 636 665
  11. 11. ©2016 Experian Information Solutions, Inc. All rights reserved. Experian Public. 11 Millennial characteristics Millennials AGE 26.3 years $50,908 636 14% $4,002 64% AVERAGE INCOME AVERAGE AVERAGE PERCENT WITH A MORTGAGE AVERAGE REVOLVING CARD BALANCE STUDENT LOAN DEBT AS A PERCENTAGE OF TOTAL DEBT (for those with student debt)
  12. 12. ©2016 Experian Information Solutions, Inc. All rights reserved. Experian Public. 12 How many Millennials are Mortgage Ready? Millennials Strong 14% Moderate 19% Weak 50% Have a mortgage 14% Unscorable 3% 24,508,934 Strong + Moderate Mortgage Ready Millennials 19% 23% 22% 26% Age Distribution of Weak Segment: 18-21 22-25 26-29 30-34 29.1% 70.5% Near-Moderate in Weak Segment: 601-660 < 601 >660 VantageScore® 3.0 range:
  13. 13. ©2016 Experian Information Solutions, Inc. All rights reserved. Experian Public. 13 Do income and education level indicate Mortgage Readiness for Millennials? Education level Average Income Insight 0% 20% 40% 60% 80% 100% Weak Moderate Strong Have a Mortgage Graduate Degree Undergrad Degree Some College (incl trade school or current student) High School Less than High School $35,435 $49,164 $73,823 $87,188 $0 $20,000 $40,000 $60,000 $80,000 $100,000 Weak Moderate Strong Have a Mortgage
  14. 14. ©2016 Experian Information Solutions, Inc. All rights reserved. Experian Public. 14 Millennial student loan impact Monthly student loan payment and % of gross monthly income Student loan balances by segment 67% 33% No Student Loans 1+ Student Loans 0% 25% 50% 75% 100% Weak Moderate Strong Have a Mortgage $1k-$5k $5k-$10k $10k-$20k $20k-$40k $50k+ $202 $240 $304 $279 $0 $50 $100 $150 $200 $250 $300 $350 Weak Moderate Strong Have a Mortgage 0% 25% 50% 75% 100% Overall balances Student loan debt burden 6.8% 5.9% 4.9% 3.8%
  15. 15. ©2016 Experian Information Solutions, Inc. All rights reserved. Experian Public. 15 Where do Millennials live?
  16. 16. ©2016 Experian Information Solutions, Inc. All rights reserved. Experian Public. 16 Where do Mortgage Ready Millennials live? - Freddie Mac Borrower Help Center
  17. 17. ©2016 Experian Information Solutions, Inc. All rights reserved. Experian Public. 17 Do Mortgage Ready Millennials live in affordable areas? - Freddie Mac Borrower Help Center
  18. 18. ©2016 Experian Information Solutions, Inc. All rights reserved. Experian and the marks used herein are service marks or registered trademarks of Experian Information Solutions, Inc. Other product and company names mentioned herein are the trademarks of their respective owners. No part of this copyrighted work may be reproduced, modified, or distributed in any form or manner without the prior written permission of Experian. Experian Public. Opportunities
  19. 19. ©2016 Experian Information Solutions, Inc. All rights reserved. Experian Public. 19 - Freddie Mac Borrower Help Center Where should lenders focus to serve potential Millennial home buyers?
  20. 20. ©2016 Experian Information Solutions, Inc. All rights reserved. Experian Public. 20 What factors predict Millennials home purchase likelihood? Logistic Regression Analysis  Gender  Number of children  Education  Housing stock  Local economic factors  VantageScore® 3.0  Age  Student debt  Credit card debt  Auto loans  Income  Marital status  Housing prices Significant factors Insignificant factors Millennial dataset
  21. 21. ©2016 Experian Information Solutions, Inc. All rights reserved. Experian Public. 21 How do the significant factors impact Millennial home purchase likelihood? Increase likelihood of home purchase: Millennials 10% increase in income = 35% more likely to purchase 10% increase in student debt = 4% less likely to purchase 10% increase in home price = 2% less likely to purchase Married = 2.67 times more likely to purchase Decrease likelihood of home purchase:
  22. 22. ©2016 Experian Information Solutions, Inc. All rights reserved. Experian and the marks used herein are service marks or registered trademarks of Experian Information Solutions, Inc. Other product and company names mentioned herein are the trademarks of their respective owners. No part of this copyrighted work may be reproduced, modified, or distributed in any form or manner without the prior written permission of Experian. Experian Public. Closing
  23. 23. ©2016 Experian Information Solutions, Inc. All rights reserved. Experian Public. 23 Conclusion There are a lot of sourcing opportunities for Millennials! Lack of affordable housing High cost areas Credit constraint borrowers Top areas of focus for Mortgage Ready borrowers Greater New York Greater Houston Greater Miami Greater Chicago Greater San Antonio Greater Dallas Greater San Bernardino Greater San Francisco Greater San Antonio Greater San Bernardino Homeownership challenge areas
  24. 24. ©2016 Experian Information Solutions, Inc. All rights reserved. Experian Public. 24 Consumer resources Where to get help Freddie Mac Borrower Help Centers  FMAC information on borrower help centers  Future expansion plans based on this data?  www.freddiemac.com/singlefamily/ho usingpros/help_centers.html Experian Credit EducatorSM  30-minute phone-based education session conducted by a trained Experian Credit Educator agent  Review of individual credit score and credit report basics  www.experian.com/credit- education/services.html
  25. 25. 25©2016 Experian Information Solutions, Inc. All rights reserved. Experian Public. ©2016 Experian Information Solutions, Inc. All rights reserved. Experian and the marks used herein are service marks or registered trademarks of Experian Information Solutions, Inc. Other product and company names mentioned herein are the trademarks of their respective owners. No part of this copyrighted work may be reproduced, modified, or distributed in any form or manner without the prior written permission of Experian. Experian Public. Renae.Sherman@experian.com Cynthia_Waldron@freddiemac.com For additional information, please contact:

Notas do Editor

  • Thank the audience for attending. Excited to be here

    Renae Sherman
    Director of Data Strategy for the consumer credit bureau
    Responsible for the development and execution of EXP’s mortgage strategy
    Joined EXP 12 years ago
    Held various positions in portfolio management and Public Sector

    Cindy Waldron
    Director of Research Analytics and Modeling in the Single-Family Affordable Lending and Access to Credit org at FMAC
    Responsibilities include researching the evolving needs of affordable and underserved markets and providing support to new affordable offerings, programs and services
    Veteran of over 20 years in the mortgage industry
    Joined FMAC in 1999
    Held various leadership positions w/in Single Family Modeling and Analytics and Single Family Affordable Lending & Access to Credit areas


  • Hispanics and Millennials are the fastest growing populations of potential home buyers.

    Millennial population continues to grow and has surpassed other generations
    Expected to be over 80M Millennials strong by the year 2050

    According to the US Census Bureau, the Hispanic population is projected to have close to 133M individuals by the year 2050 representing a 255% increase over a 40 year span starting in 2011

    Both populations represent a tremendous opportunity for the mortgage industry
  • Deeper dive

    Review statistics

    Populations are growing at a staggering rate and represent the largest percentage of future homebuyers

    During this session we will focus on answering the following questions:
    What do these populations look like?
    Do their credit characteristics indicate “Mortgage Readiness”?
    Is there enough affordable housing available in markets where they live?
  • In order to answer the questions I just asked, we obtained a unique data set combining Experian Consumer Credit information with Experian Marketing data.

    Note: underestimated thin file consumers during random sample/draw. Those without a credit profile were excluded since we sourced the sample from credit.

    Sample obtained from December 2015

    VantageScore – consumer risk score that predicts:
    Probability of default within 24 months
    Likelihood of future serious DQ’s 90 days or greater
    In the familiar score range of 300–850
    Higher scores represent a lower likelihood of risk
    Lower scores are higher risk
    Premier Attributes – aggregated level attributes on various types of debt; auto, mortgage, student loan, etc
    Income – estimated income and DTI models
  • Cindy - In order to determine those in our samples who we thought were “credit ready”. We sorted our sample into 3 credit categories based on some initial Underwriting Criteria.
    The main criteria was the Vantage score and the ability to have a DTI of < 45%.
    While CFPB has the ability to repay rule or QM (Qualified Mortgage) at 43%, the GSEs have some leeway so we gave a little buffer.
    A strong credit is > 737 and a moderate credit is between 661 and 736. Both are prime with 661 being the prime cut-off.
    Then we implemented some basic credit rules to further determine their credit strength such as foreclosures, bankruptcies and delinquencies. If they triggered any of these credit impairments, they moved from strong or moderate credit to weak.
    The weak credit also include those with <661 VantageScore. ( note but don’t say: <664 (661) = around a 680 FICO )
  • Cindy: Our sample contained around 11.6 million consumers, with an average 683 VantageScore
    You can see the mortgage characteristics of the population using the criteria we outlined earlier with 34% being mortgage ready, 32% weak and 4% unscoreable of those in the sample w/o a mortgage tradeline.
  • How generations have been characterized for purposes of this presentation

  • Scores represent consumers with and without a mortgage

    Mill – Near Prime
    Gen X – Prime
    BB – Prime
    Silent - Prime

    Millennial – less credit history, still in college, student loan debt, near Prime
    Gen X – more established credit profile, Prime, some younger Gen X’ers may still be paying off student loan debt
    Baby Boomers – established credit profile, Prime
    Silent – very established credit history, Prime, understand how to use credot
  • Stress – sample data

    Of those with student loans, it represents 64% of their total debt

    Average homeowner has a revolving card balance of $10k
  • Cindy: So, how many Millennials are mortgage ready given our criteria?

    We show 33% have strong or moderate credit or around 20.7 million. What really stands out is that 50% have weak credit.
    This is a huge percent but its not necessarily as bad as it may seem.
    First 40% of the weak are age 18-25 and haven’t had enough time to build up their credit
    Second, of those 51% with weak credit, 31% are what we call “near-moderate” meaning their Vantage score is 601-660.
    This subset could qualify for a mortgage but we would need to do additional research and for now we decided to be more conservative and put them in the weak segment.

    Note: Percentages include VS3 scoreable only
  • Cindy: Next we looked at education and income level by credit buckets

    For the stacked bar chart on the left, the way to read this is that each color represents a level of education and the lowest is at the bottom and the highest is at the top. For example, the yellow is the percentage of those in the population with less than a high school diploma. The teal is high school and red is some college (including trade school or current student). If you look at the weak category on the left, you see around 82% have Some college, high school or less in education.

    Looking at education level and credit buckets, there does seem to be a gradually increased in education with better credit but its not as pronounced as you might think.
    For example, graduate and undergrad are 18% in the weak category vs. 37% in have a mortgage.

    For Income, the results are what you would expect. The more income the better the credit.
    It is striking how much lower the average weak income is to the average Millennial income of 53,600. They have significantly less disposable income.


  • Cindy: Millennials and their student debt burden has been talked about a lot lately so we looked into how much of a burden it actually is.

    Student debt effects 33% of Millennials. Of those with debt,
    15% percent of them have > 50K in student loans (These may have changed…check with Alex)
    58% have < 20K in student loans which is less than the cost of most cars.

    When you look at the credit categories and amount of student debt each has, the noticeable thing is its not that compelling.
    What I mean is the various buckets of debt are about the same for each credit bucket and those with a mortgage.
    When you look at monthly loan payment you also see that the variance is not that big. However it is interesting that weak and moderate income have less payments than strong and have a mortgage. This could mean weak and moderate go more to less costly loans higher education institutions or possibly more trade schools vs. college. They also don’t make as much money given their higher % of gross monthly income going to student loan debt.

    This leads us to consider that Student loans influence the credit categories but don’t appear given our data snap shot to be that significant. However, more research is needed to determine the magnitude of student loan significance to credit strength.
    *(Open student loan trade on file)
  • Renae: Not surprising, Millennials appear to live in more urban areas.

    Some interesting or unexpected pockets:
    lower Idaho,
    Upper Nevada
    Utah pocket as well as some in North and South Dakota.
  • Tend to live in major metropolitan areas where there are jobs and housing

    These are the places where they can make $

    Greater Los Angeles
    San Fran
    Chicago
    Dallas
    Houston

    EAST – NY, Boston, Baltimore, DC
  • Cindy: Once we determined where the top MSA where most of the Millennials live, we looked at which of those MSA are affordable.
    We defined affordable as if the “Weak or Moderate” consumers quarterly gross income > or = to the mortgage amount they would pay for in a year.
    These calculations are based on the assumption that they would put 10% down, 4% interest rate and get a 30 year mortgage.
    In addition, the average house price for SF and Condo median house price is at the county level using Freddie’s House Value Estimator as of December 2015.
    The percentage is how many mortgage ready millennials could afford that area.

    Given this criteria, the west coast does not seem to be affordable while you see Texas and Chicago appears to be the most affordable and the East coast is moderately affordable, especially for Condos.


  • Cindy: Next, we looked at which of these MSA had enough housing stock for the mortgage ready Millennials?

    We used RedFin to calculate an industry rule of thumb to see if housing it tight. If inventory/sales >6, we determined the greater MSA area had adequate housing supply, if inventory/sales < 6, we assigned the great MSA area as not having enough affordable housing.
    Keep in mind we used the snap shot period of December 2015 and the housing stock availability could change if we updated it for today’s date.

    Given these parameters, we estimated the greater New York MSA, Miami, and Houston areas where the top three areas where Credit Ready Millennials live, its an affordable area AND has enough housing stock.

    One of the business reasons Freddie Mac wanted to do this research is to see where they should focus efforts on expanding home ownership for these two growing segments. If you see the “stars” on the map, they are locations that Freddie Mac has a Borrower help center. These centers originally focused on hardest hit areas and have pivoted to not only doing borrower counseling but also helping the borrower though the shopping process. Freddie wanted to see if where we had these BHC were good locations for these two populations or if we should add a borrower help center in a new location or strategically place another type of resource center like a BHC in other locations. This research will help us better understand where we should provide sourcing and educations support for borrowers.
  • Cindy: After determining where good sourcing opportunities were for these populations, we wanted to better understand what factors (positively) and (negatively) played a role in them getting a mortgage.
    Holding everything else constant we found these factors significant and insignificant.
    Some unexpected results are that # of children, education, housing stock and the state effect or local economic factors where not that significant.
    Not so surprising is that age, marital status debt and income were significant factors.

    Not all of these variables have the same magnitude of significance. Let’s look at some in more detail.
  • Cindy: The two factors that have a strong correlation on homeownership is income and being married.

    While significant, the correlation is not as strong for student debt and home price. With on a 10% increase neither increases the likelihood of getting a mortgage more than 5%.
  • Cindy: In conclusion,

    Given the snap-shot of data at the end of December, we found that the Greater NY, Houston and Miami would be good areas for sourcing Millennials and Hispanics who are mortgage ready.

    We also found some homeownership challenges such as lack of affordable housing and high cost areas. While we saw lack of affordable stock in December, these areas can and should be monitored to see if opportunities are increasing.
    Lastly, we saw that many Millennials are credit constraint.
    To reduce this access to credit problem, Freddie has borrower help centers and Experian has a credit Educator.

  • Cindy: As mentioned earlier,
    Freddie Mac has various BHC that provide counseling and credit education. Some of the weak credit Millennials and Hispanics may not know how to use credit as a tool and it lowered their credit scored. Improving their credit education may improve it.

    Renae:

    Credit Educator
    Positively shapes consumer credit

    Thank audience

    Who has the first question?
    Who has the last question?

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