In a recent post, we summarized the main market indicators from 2023 HMDA[1]. Besides offering a wider view of the mortgage market than contained in the Agency disclosures, HMDA contains a wealth of information about borrower characteristics, harking back to its original purpose of ensuring credit availability across populations. This note provides a look at some of the most-followed characteristics. We start with the race of the borrower. This type of analysis is rather nuanced as HMDA allows for information for up to two borrowers per loan file, with demographic information available for both. The chart below shows the distribution of new conventional and FHA mortgages by the race of the first race category reported by the first borrower only. A few salient points can be immediately inferred. First, we can see that the minority share of mortgage recipients has risen steadily over the past 14 years for both loan types. FHA continues to have a higher minority share than conventional, with minority borrowers accounting for almost half (47%) of new loans last year. That said, the share of minority borrowers obtaining conventional loans almost doubled over the 2009-2023 period to 28%, slightly below the 30% peak attained in 2006. In terms of breakdowns by race, the increase in the share of loans going to Hispanic borrowers led minority in both the conforming and FHA markets. Asian borrowers remain more significant to conventional than to FHA. There are many factors that account for these trends, including population growth in each category, policy measures taken to support minority ownership, and overall market conditions. It’s interesting to note that there is a distinct correlation between minority share and house prices in both programs. In the mid-2000, this ended badly as a disproportionate share of minority borrowers were trapped in toxic loans that led to foreclosures when the market collapsed. These concerns do not automatically carry over to the present as credit conditions are much more conservative, and policy is designed to keep distressed borrowers in their homes to the greatest extent possible. Next, we turn to gender. Here is the share of two-borrower loans where the lead borrower identifies as female: In 2023, the female share rose for the 10th time in 11 years, more than doubling from 14.9% in 2012 to 32.9% last year. HMDA also contains borrower income information, but a detailed analysis awaits the arrival of MSA-level median income data from HUD, which should be out sometime mid-year about when the final version of 2023 HMDA is released. For now, we can look at the distribution of loans by income bucket for the past three years: For both conventional and FHA loans, we have witnessed an increase in the weight of the distribution at the right tail, at the expense of the hump in middle-income brackets. This is particularly true for conforming loans where the share of incomes in the greater than or equal to $250 bucket jumped from 11.9% in 2021 to 16.6% in 2023. In the next blog, we will look at manufactured housing, a topic receiving increased policy scrutiny in the current era of unaffordable housing. This rich and robust dataset can accomplish much more. Feel free to contact us with specific questions. In a recent post, we reviewed the market for mortgages with down payment assistance features[1]. We noted that our loan-level data for FHA showed a rate that was about half of that reported by the FHA Portfolio Snapshot database.
Since the agency disclosures are at the loan level, we use this dataset to do a deep dive into which servicers are most active with this product and what loan performance looks like across institutions. Unlike the previous note, which covered all deliveries, here we focus on the market for new purchase mortgages. Below find a table of the DPA usage for the top ten FHA purchase mortgage issuers in 2023, along with summary statistics for 2022 and 2021: On March 8, 2023, Silicon Valley Bank (SVB) announced a loss of $1.8 billion in a sale of assets and collapsed two days later. The ensuing market turmoil resulted in a string of bank failures and a temporary surge in Federal Reserve lending to the banking sector. What impact has this event had on the mortgage market?
To answer this question, we need to be able to distinguish the impact of the SVB collapse from other factors that can impact bank lending. The economy in general and labor markets in particular have posted robust performance statistics over the past year. Mortgage rates, which were about 6.75% in early March last year, surged to a 23-year peak of 7.75% in November and currently stand nearly unchanged from a year ago at about 6.75%. In Mortgage Winter, affordability is job one for housing policy. In our most recent quarterly macro report, we noted that the share of loans with buydowns posted significant increases across all three agencies in the second half of 2023[1]. To see how widespread these sorts of supportive actions are, we look at down payment assistance (DPA) programs.
To start, the GSEs only allow downpayment assistance through specified second lien programs: “Community Seconds” for Fannie Mae[2] and “Affordable Seconds” for Freddie Mac[3]. While there are technical differences between programs, they are second liens funded by an approved list of government agencies, nonprofits, and private sector lenders. The liens are subordinate to the first mortgage and face various limits on combined LTV (CLTV) and note rates. These liens are neither securitized by the Enterprises nor directly reported in the data disclosures. However, we could identify those (we call it “piggyback”) by looking for loans with the original combined LTV higher than its original LTV. Below find the number of owner-occupied loans containing “piggyback” liens for the HFA programs, the low-income programs (FNM “Home Ready” and FHL “Home Possible”), and other[4]: The recent release of pool-level buydown data led us to write a note contrasting the use of this product across Agencies, including Ginnie Mae[1]. In the process of writing this, we discovered that FHA, unlike the GSEs, also provides loan-level data for buydowns. This allowed us to run an analysis showing loan performance as measured by EPDs was better for FHA loans with buydowns than without, reflecting increased lender caution in using buydowns, which, on average, had higher credit scores than those without. The availability of loan-level data for FHA on this topic provides us with an opportunity to conduct an additional informative analysis specific to this program, which we document here. To start, let’s look at the share of the market with buydowns: ...... ...... ...... To read the full article, please send an email to inquiry@recursionco.com As we head into the end of summer, we note that the housing market remains locked into “Mortgage Winter”. Refinance activities are muted as mortgage rates are at a 22-year high. Even purchase mortgage applications are at the lowest level seen since 1995 as homeowners are not willing to give up their mortgages at historical low rates. It’s not hard to imagine that in such a world we will see new behaviors as mortgage lenders struggle to remain viable. PennyMac stood out as one of the more creative lenders that was able to refinance the mortgages it services, indicated by the following chart: To read the full article, please send an email to inquiry@recursionco.com
Rising inflation and 30-year mortgage rates near 20-year highs of around 7%, coupled with historically high house prices, have sharply dampened housing demand in the US. This is particularly true for lower-income borrowers where household budgets are badly stretched. These developments have caught the attention of policymakers, who, in response, have taken it upon themselves to lower mortgage fees to partially compensate for these factors. This is an interesting moment in the formation of housing policy as we have two sets of changes taking effect close together in time. First, FHA announced on February 22, 2023, that it would cut its mortgage insurance premiums by 0.30% to 0.55% effective March 20. More recently, on March 22, GSEs implemented a rather complex set of changes in their upfront fee schedules, effective May 1: To read the full article, please send an email to inquiry@recursionco.com
In a previous note, we looked at mortgage trends derived from the recent release of 2022 HMDA data[1]. Of course, HMDA is a prime data source for analysts and policymakers who seek to understand how social and economic trends interact. The most discussed issue is the distribution of originations by race. Below find a bar chart for the share of originations by race annually from 2004-2022 by loan count:
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