Here's what Dick Syron, Freddie Mac's Chairman and CEO has to say about the year ahead: "Simply put, we're coming down from Mount Everest levels of activity. But 2006 still should be a good year at the base camp – hopefully leveling out at a high plateau." This means that 2006 will sharpen the competition for mortgage borrowers. According to Freddie Mac's latest forecast, 30-year fixed rate mortgages are expected to rise – about 10% – an annualized average of 6.4%. Historically low, it's still enough to put a dent in originations, which we expect to shrink as much as 14% this year and the refinance share contract from 41 to 32% of the volume. So what's the recipe for success in a year of fewer borrowers and tougher competition throughout the credit union industry? If past is prologue, the lending industry will put even more muscle into products and marketing outreach campaigns designed to bring on-the-fence borrowers to the closing table. In other words – more focus on connecting America's emerging markets (immigrants and minorities) to flexible mortgage products with more give on credit and downpayments. Let's start with emerging markets. Over the next 20 years, minorities and immigrants will drive two-thirds of America's household growth and a comparable proportion of new mortgage borrowers (with the potential for acquiring new lender loyalties). Harvard's Joint Center for Housing Studies recently predicted that Latino owner households will soar 111% by 2020, followed by a 94% surge in Asian homeowners and a 64% jump in African-American homeowners. (By contrast, the projected net change in new white owner households is just 20%.) Three factors are driving this growth: expanding population, wealth and demand. Consider these three findings: * The Census Bureau estimates the Latino community alone accounted for half of the nation's one-year population growth in 2004 and is growing three times faster than the U.S. population. * The combined buying power of Latinos, Blacks, Asian Americans and Native Americans is expected to exceed $1.5 trillion within three years according to Terry College of Business in Atlanta and the Simon S. Selig Center for Economic Growth. * 84% of Latino renters "strongly" desire to own a home and 55% plan to buy one within the next five years The Tomas Rivera Policy Institute and the University of Southern California. At the same Latino and Black homeownership rates trail white homeownership rates by 25 percentage points. Since every new mortgage borrower is an opportunity to cross-sell six more financial services – it's no wonder emerging households are emerging as this decade's key demographic target for the lending industry. And why over the past three years, more than 558 credit unions have adopted nearly 1,000 underserved neighborhoods under NCUA's Access Across America initiative. How can credit unions write mortgages for more emerging borrowers with limited credit, limited savings, limited English, and limited homebuying experience? Step One: Reach Out Our own research suggests almost half of the gap between white and minority homeownership rates is not due to income, age or length of residency, but a handful of persistent misconceptions about homebuying as well as (for immigrants) cultural and language barriers. About half of the Latino and African-American households we surveyed said you need a 20% downpayment, perfect credit, and three years on the same job to qualify for a mortgage. To counter these misconceptions, Freddie Mac created CreditSmart" and CreditSmart" Espaol. Over the past few years, these two initiatives have provided eight- to 10 one-hour workshops on credit, homeownership, the mortgage process, and the importance of establishing relationships with a banking institution to more than 57,000 minority and immigrant families. (The Federal Reserve reports 42% of foreign-born Latinos don't use financial institutions.) A new version for Asian immigrants is planned for later this year. Step Two: Acclimate Once a potential customer is through the door, the next challenge is to put them at ease. This is particularly acute challenge with a market that is unfamiliar, if not suspicious, of financial institutions. To help credit unions and other originators break the ice with new borrowers, Freddie Mac is working with VMP Mortgage Solutions, Inc. (VMP) to provide credit unions and other lenders with Spanish language state-specific security instruments, notes, and other mortgage documents Step Three: Accommodate To accommodate the special needs of the emerging market, Freddie Mac create the Home Possiblesm Mortgage: a low-downpayment, flexible product that enables qualified borrowers to finance a house with as little as $500 from their own wallets. Available only through our Loan Prospector automated underwriting service, Home Possible provides expanded credit and debt-to-income ratios to reach borrowers with limited credit and higher levels of managed debt, and a maximum TLTV of 105% for borrowers with limited downpayment savings. Minimum downpayments range from zero to five percent. Limited to borrowers earning up to the median income – or buying in underserved areas. Other special Home Possible features: * Enable borrowers to use a wide range of second loans – including Freddie Mac's Affordable Seconds, or any fixed rate second loan that isn't seller paid, a home equity line of credit, or which imposes a prepayment penalty. * Offer law enforcement officials, firefighters, health care workers and educators, with additional flexibilities (like higher debt-to-income ratios and three-year subsidy buy-downs) that can increase homebuying power by as much as 30%. * Requires pre-purchase education, such as the free on-line training available on the Freddie Mac website (freddiemac.com) (Our research shows such counseling can cut delinquencies by 34%.) Step Four: Implement Bi-lingual business resources, flexible, low-downpayment mortgage products, and outreach efforts are just a few examples of the tools the nation's credit unions will need to succeed with the country's newest borrowers in 2006. Last year, Freddie Mac created our first-ever management team exclusively for credit unions to make it easier for credit unions to access these and other critical business resources.