Fannie Mae helped to create Affordable Advantage after the state government agencies tasked with expanding homeownership found they were having trouble doing their job. Before the recession hit, these housing finance agencies, known as HFAs, issued tax-free bonds and used the funds on programs to encourage developers to build in underserved areas and to support single-family mortgages. When the financial crisis hit, private companies — leery of the collapsing housing bubble and freezing mortgage market — no longer wanted to buy the HFAs’ bonds. Their business ground to a halt.
(emphasis added)
When working with buyers in the ’80’s, I was familiar with CHFA (Cal. Housing Finance Agency) loans which only loaned in certain census tracts whose household median incomes were about $31K. A buyer-household could not have a combined gross income of over about $43,500 at the time to qualify for a CHFA loan.
This was back when redlining was common among FNMA lenders so CHFA loans served their purpose at that time.
Because of similar geographical limits put on HFA lending today and the fact that those areas have tended to fall in value first and longer in a downturn, I don’t think the program is a good idea anymore. No amount of “future-homeowner” or “budgeting” classes will insulate these buyers from going underwater fairly fast in a downturn. In addition, this group of first-time homebuyers has much higher expectations for their first home than did young buyers in the 80’s. At least in CA, I don’t see this program really “taking off” again except, for example, in San Bernardino, Kern, Fresno, Merced, Stanislaus and (parts of) Placer County.
Edit: I forgot to add that the typical downpayment for a CHFA loan back then was $1000 and the maximum down payment was $3000. Closing costs were wrapped into the mortgages.
