Last week’s announcement by FHFA of elaborate changes in the GSE’s upfront fee matrixes to be implemented in May[1] reminded us that this is just the latest in a series of announcements made by the housing regulator over the past year. Just over a year ago, FHFA announced fee hikes for second homes and high balance loans.[2] At the time, we looked at the impact of the second home fee hike on the market through the lens of the relative impact compared to investor properties, which did not experience such an increase. To complete the picture, here is a chart for high-balance loans:

​Growing concerns about a looming recession combined with increasing signs of distress in Government mortgage programs, particularly FHA, are leading many market participants to step up their focus on GSE buyouts. These found a recent peak last winter as forbearance programs unwound and have been in a generally declining trend since that time.

Recursion has undertaken an intensive effort to compute the size of the Agency CMO market back to 2000. The size of the Agency CMO market is calculated by building up from the loan level. This data is provided by agency disclosure of the portfolio of each collateral group and collected from text files, pdfs, and other formats across single-family and multifamily CMOs. The formats of the disclosure files differed across agencies and changed over time, presenting a challenge to unify.

The inconsistent data quality posed another challenge. The single metric we used to assess quality was assets = liabilities. The existence of Re-Remics and IOs introduced overcounting, which we eliminated using an algorithm that closed the asset-liability gap, with the remaining portion largely explained by over-collateralization. In the end, we were able to construct a direct relationship with all single-family and multifamily CMOs and the loans backing them up via the “exploded method”.
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We performed these calculations by agency for both single-family and multifamily loans on a monthly basis. Below find bar charts of the progression of the single and multifamily CMO markets back to 2000 on a year-end basis. The single-family CMOs for the three agencies are fairly homogenous. For multifamily CMOs, we include the CMOs collateralized by Ginnie Mae multifamily pools backed by Ginnie construction loans and project loans. For Fannie Mae, we include Fannie Mae GeMS (CMO deals backed by Fannie DUS pools), and for Freddie Mac, we include all Freddie K deals-- classifying them as 100% CMO due to their structure.

For some time, we have been following the trends in appraisal waiver usage for loans delivered to the GSEs[1]. Now it’s interesting to revisit these trends in the wake of the recent sharp volatility in economic and market conditions. Appraisal waiver usage by originators is one of a number of decisions that reflect the risk appetite of loan-producing firms. All else being equal, a waiver serves to reduce costs, and potentially volumes, at a cost of increased uncertainty about a property’s valuation. As the mortgage market is currently dominated by purchase mortgages in this high interest rate environment, we limit our analysis to this loan purpose.

The risk aspect can be clearly seen by the tendency for waivers to be more widely available for borrowers with strong credit profiles:

As policy interest rates continue to rise and economic activity begins to slow, attention in the mortgage market shifts towards concerns about the potential for borrower distress. We are early in this process as the labor market continues to add jobs, and there continue to be more job openings than people looking for work. Nonetheless, signs of strain begin to be seen, and it's worthwhile to point out early trends and consider implications.
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Notably, the impact of Hurricane Ian could be seen in the short-term delinquency data:

We’ve written before about curtailments, which are particularly interesting during times of rising interest rates when refinancings are at low levels[1]. We believe that investors and modelers would benefit from examining this aspect of borrower behavior. A good way to demonstrate this is to look at the home payment patterns of repeat homebuyers. In the recent environment of skyrocketing home prices, buyers of new homes have been confident about their ability to sell their current residence and have been more likely to purchase their new home before they pay off their old mortgage. If this story is true, we would expect to see significant curtailment activity within a few months of the purchase of a residence on the part of repeat buyers. In our previous note, we introduced the concept of a “Constant Curtailment Rate”, and implemented the calculation in Cohort Analyzer to quantify this effect:

In a recent post, we discussed the utility of the FHA Performance dataset in tracking borrower stress in the housing market[1]. Here we look at other interesting market perspectives that can be obtained from this release.

First, we look at property type. This breakdown is not available in the GNM loan-level disclosures, so this is a new view. Here we have 30-day DQ rates broken down over five categories:

We recently wrote about the increase in short-dated delinquencies in FHA pools relative to loans in conforming pools[1]. We took this as a sign of the disproportionate impact that inflation has on lower-income households. This is a useful observation, but it is limited by the lack of visibility on delinquencies of three-month duration or longer as these loans are often bought out of pools. To address this gap, we recently imported the FHA performance data. This data is not available at the loan level, but the aggregate characteristics are informative.