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The Honolulu Advertiser
Posted on: Thursday, April 20, 2006

Purchasing home not impossible in Hawai'i

By Andrew Gomes
Advertiser Staff Writer


Freddie Mac's Hawai'i Homeownership Initiative:


(808) 356-4000

Upcoming home finance workshops

Wednesday and May 20 and 24 on O'ahu; April 29 on Kaua'i.

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As rising Hawai'i home prices continue to push ownership out of reach for more residents, one of the nation's largest suppliers of mortgage money has teamed up with local partners to help people buy a house without the best credit or income.

Mortgage financier Freddie Mac yesterday announced a statewide campaign with Central Pacific HomeLoans and the Hawai'i Association of Realtors to promote financial literacy workshops and flexible mortgages for consumers who have little savings and modest paychecks.

The partnership is one of several Freddie Mac has made with lenders and nonprofit organizations in other states, and is being welcomed in one of the nation's toughest housing markets.

"This is a great program because Hawai'i ... has a problem with affordable housing," U.S. Sen. Daniel Akaka said at a ceremony launching the initiative led by Freddie Mac, a stockholder-owned company established by Congress in 1970 to help finance home mortgage lending.

Hawai'i's rate of homeownership has historically been among the lowest in the country, and last year declined by nearly 1 percentage point, to 59.8 percent, after four years of consecutive increases from 55.2 percent in 2000 to 60.6 percent in 2004, according to the Census Bureau.

Historically low interest rates made it possible for record home buying in the past several years even as prices skyrocketed, but with interest rates and home prices projected to rise this year, homes are becoming less affordable.

The median price for O'ahu single-family homes sold last month reached a record $650,000, meaning half the homes sold for more and half for less. That is more than double the median price in 2001.

On Maui, the median single-family home price last month was $705,000, and the condominium median price was a record $525,000.

Partially to offset skyrocketing home prices, many lenders have promoted highly leveraged mortgage products that allow buyers to borrow more than the traditional 80 percent of a home's value. Such loans often are tied to higher interest rates or other variables like interest-only payments that create more risk for borrowers.

Freddie Mac early last year created its flexible loan product, called Home Possible, offering loans for up to 100 percent of a home's value with as little as $500 cash down.

The Freddie Mac product carries interest at the prime rate, and is typically available to people with less than perfect credit scores or credit that needs repair.

Households earning up to $115,000 a year (regardless of household size) can qualify for the loans, which are not restricted to first-time buyers. However, there is a borrowing limit of $625,500, and the property must be a primary residence.

The loans come with customary closing costs, but can shave $100 or more a month off monthly mortgage payments by reducing mortgage insurance premiums by nearly half. The loans also carry 15-, 20- and 30-year terms as well as hybrid terms where the interest rate becomes adjustable after seven or 10 years.

But Freddie Mac, which offers the loans to consumers through numerous local and national lenders and mortgage brokers, didn't receive much Home Possible business in Hawai'i, according to Samuel Luna, director of expanding markets for Freddie Mac.

Hence the outreach campaign, which features radio advertisements, a Web site and workshops designed by Freddie Mac called CreditSmart to educate consumers about developing and managing credit as well as how lenders assess consumer credit histories.

Luna said the company typically partners with nonprofit or community organizations to offer its curriculum, but found Central Pacific willing to assume the role in Hawai'i.

Central Pacific has held three workshops since February, and made loans to three of about 30 participants to date. The next workshops are scheduled for Wednesday on O'ahu and April 29 on Kaua'i. Workshops are planned on other Neighbor Islands in the next year or so.

"We think more families are out there that could benefit from this program," said Gayle Ishima, chief operating officer of Central Pacific HomeLoans.

"We are opening up homeownership opportunities for more consumers than ever before," added Jim O'Connor, president and CEO of the Hawai'i Association of Realtors.

Debra De Luz, a photo clerk at Longs Drug Stores, is one of the three new Hawai'i homeowners who used the CreditSmart class and a Home Possible loan.

"I just took a chance," said De Luz, who put down $500 to buy a single-family home at Ewa by Gentry for $387,000 with her 24-year-old son, Aaron.

De Luz said she previously was living with her sister and never imagined she could own a home, but visited a Gentry open house and was informed about the Freddie Mac loan program. "I didn't know what to expect," she said. "I do love my home."

Central Pacific plans to offer another Freddie Mac loan option that provides employees in fields of teaching, firefighting, law enforcement and healthcare with reduced mortgage rates for the first three years of a loan, which can increase buying power by up to 30 percent.

Terms on this loan option are similar to the Home Possible terms with 100 percent financing, but reduces the interest rate by 1.5 percentage points in the first year, and by 0.5 percentage points in the second and third years.

Reach Andrew Gomes at agomes@honoluluadvertiser.com.