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Th e M Rep o RT | 25 Feature Now, as mortgage rates remain low, changing market conditions mean millennials are taking an- other look at homeownership. The Worst-Off Generation? M illennials, also known as Generation Y, are enter- ing the housing market in force after years of challenges. Born 1980 to 2000, they're the genera- tion that graduated into or just after the "Great Recession" to encounter crushing student debt burdens coupled with few avail- able job opportunities. Many re- turned to live with their parents or moved into shared rentals in order to manage their debt on low-wage employment. Their homebuying dreams re- ceded even further as the mortgage industry adopted stricter under- writing guidelines in response to the housing crisis that began in 2008. With the lowest net worth of all generations, millennials found themselves unable to ac- cumulate the necessary funds for a down payment and high debt-to- income ratios effectively shut them out of many home loan programs. This bleak environment shaped negative millennial attitudes to- wards homeownership—as widely reported by the media. Much was made of millennials' perceived preference for easy mobility and low overhead, minimal responsibil- ity, and unconventional lifestyles. Taking on a mortgage for a suburban three-bedroom with a large backyard had little allure—or practical value—for this generation. From Starter Income to Starter Home A s the economy continues to improve and millennials settle into employment and mar- riage, lenders are becoming aware that this stereotype is fading. It turns out marriage and family formation—the traditional drivers for home purchases—for this gen- eration have only been delayed, not rejected entirely. Generation Y may even enjoy some advantages as prospective homebuyers. They have compara- tively lower credit card debt than some other generations, although their installment debt (car and student loans) may be higher. However, their student debt loads may not be as punishing as generally believed—according to the National Association of Realtors, 70 percent of student loan borrowers owe less than $25,000 (Real Estate News, "3 Reasons Millennials Are Driving the Housing Market"). Many millennials have good re- lationships with their parents. In practical terms, this means they can live inexpensively in the fam- ily home while saving for a down payment—and are also more likely to receive parental contributions to their homebuying funds. Their overall financial situations are strengthening as the employment picture im- proves. According to the Labor Department, the unemployment rate for adults between 25 and 34 fell to about 5 percent as of February 2015. This is cheer- ing news for millennials hoping to achieve the job stability and steady income necessary for suc- cessful homeownership. Overall, although marrying late and starting their families late, millennials appear to share core attitudes with other generations about the desirability of homeown- ership. In a December press release, Zillow's chief economist claimed 42 percent of millennials aged 18 to 34 said they planned to buy a home in the next one to five years. Meanwhile, the market is com- ing to meet them halfway. A Zillow report released in December predicted 2015 condi- tions will dramatically affect the ability of Generation Y to purchase homes: • U.S. rents will outpace home values by the end of the year (home values up 2.5 percent, rents 3.5 percent). • Builders will begin constructing more lower-cost homes. • Homebuyers will have more negotiating power in 2015. Policymakers, aware that mil- lennials will drive the economy in a few years, and mortgage lenders who recognize the importance of this large demographic are updating industry guidelines. The Government Sponsored Enterprises recently announced they would begin accepting 97 percent LTV loans. Down payments of 3 percent are much easier to accumulate than the standard 20 percent down. In addition, even that 3 percent can often be funded by a gift or grant. New down payment assistance programs are being unveiled by various state and community agencies with the goal of helping first-time homebuyers qualify for various loan programs. Private mortgage insurance (MI) is helping many lenders reach out to millennial home- buyers. Banks can accept a 3 percent down payment because these loans are insured with MI, protecting the lender against the risk of default. Moreover, special MI programs offer homebuyer education assistance and can sup- port eligible first-time homebuy- ers with broader underwriting qualifications and a range of loan terms that may lower monthly payments by taking advantage of today's low interest rates. One option currently avail- able to lenders is Arch MI's new Millennial Mortgage program. Recognizing the triple challenge unique to Generation Y—high debt loads, small down payments, and worries about making monthly payments on modest "starter incomes"—the program offers flex- ible and affordable solutions like low down payments and higher debt-to-income ratios to accom- modate student loans, and permits a variety of loan amortization and extended terms that may lower monthly payments. Arch MI even provides the option for lenders to reduce the amount of MI coverage purchased, which could result in an even lower monthly home loan payment. Build a Reputation of Trust to Win Over Millennials W ith the recession fresh in their memory, having suffered three sluggish years of recovery punctuated by corporate and governmental scandals, mil- lennials are often characterized as a cynical bunch. In a Brookings Institution survey, only 19 percent agreed with the statement, "Most people can be trusted." The recession and housing cri- sis generated a wave of bad press for the banking industry that con- tinues to some degree today. As a It turns out marriage and family formation—the traditional drivers for home purchases—for this generation have only been delayed, not rejected entirely.

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