Usually, when we talk about financial institutions in our posts, we focus on sellers and/or servicers as we have a clear view from the Agency disclosures. An interesting distinction in this regard is to break down originations between those sourced through a retail channel within the lending institutions and those purchased from other lenders, known as third-party originations (TPOs). We are often asked the question in the case of TPO lending, where only sponsors of the mortgages are reported, who are the originators? This information is not reported in the agency loan-level disclosure. We can supplement this information by examining originators in the HMDA data by observing the fact a TPO (correspondent or broker) loan is often reported twice, one record reported by the originator and another reported by the sponsor. At Recursion, we conducted an exercise by matching the pairs together, and we were able to identify the counterparty pairs for about 50% of the mortgages marked as “purchased”, and also made this revealing data point to our HMDA Analyzer users.
According to the 2021 HMDA preliminary release, about 2.65 million loans were purchased from other lenders that year, about 18% of all originations. Roughly half of these purchases were made by 10 institutions:
While the Fed has clearly been the dominant player in the MBS market for the last 13 ½ years, the consistent biggest holders of MBS have been the banks. When the Federal Reserve launched its QE program in late 2008, banks held about 16% of the outstanding balance at the time, and that share has more than doubled as of Q1 2022 to stand at about one-third of the total. In a recent blog, we dug into the details behind international investor behavior with an ancillary dataset, for the banks, we look for guidance from the Call Reports.
The Call Reports provide details on portfolio holdings of individual banks across financial asset categories (e.g., equities and bonds) for both loans and securities. For the purposes of this note, we just look at securities. What makes bank behavior so challenging to assess is that various types of policy actions have profound impacts on their investment decisions. To begin, we look at the share of residential agency MBS out of total bank assets, including both pass-through securities and CMOs:
On May 25, 2022, Ginnie Mae announced that starting on June 8 it would enhance its pool and loan-level multifamily disclosures through the addition of an Affordable Status Field. This field marks every FHA loan in pools with a Ginnie Mae guarantee as:
We received this data on the 6th business evening, and below find some summary descriptions:
In recent posts, we’ve been tracking the progress of loans coming out of forbearance into various pool types such as Reperforming (RG), Extended Term (ET) and, even Private Label pools. A different perspective can be obtained by looking at the disposition of loans with partial claims. Recall that a partial claim occurs when a borrower with missed payments can resume making payments but does not have the resources to increase payments to compensate for the balance missed. In general, the missed payments are placed into a subordinate lien that comes due when the mortgage is extinguished. It is important to note that a partial claim is not a modification, and a loan with a partial claim does not have to be in a forbearance program.
Recently, Ginnie Mae announced that they would disclose the share of loans in pools with partial claims. Below find a summary table of these results reported first ever as of April, 2022
With the 30-year mortgage rate surging to a 13-year high near 5 ¼% and the FHFA purchase-only house price index at a record-high 19.42% in February (edging out the prior record of 19.39% in July 2021), we are in an unprecedented environment in the mortgage market. As such, it makes sense to update our analysis of the trend in issuance updated through April. Of particular interest in this regard are the FHA and VA programs.
Let’s start by looking at FHA. By loan count, there were 107,500 FHA loans issued in GNM pools in April, with a decline of over 1/3 from the same month a year earlier. One special interest is the evolution of the share of issuance by loan purpose:
In a recent post, we discussed findings obtained with the recent release of 2021 HMDA data. Among other things, we looked at the share of mortgage originations by income group and product type. In this note, we look at the difference in lending patterns between the banks and nonbanks.
The incentive behind this approach is policy driven. There is a long history of measures taken to encourage lenders and builders to foster economic development in low-income areas via the housing market. For example, the Community Reinvestment Act (CRA) stipulates that a bank’s performance with regards to compliance of their regulatory requirements depends in part on:
“the geographic distribution of loans—that is, the proportion of the bank's total loans made within its assessment area; how these loans are distributed among low-, moderate-, middle-, and upper income locations”
To assess this issue, we assign a flag to each of the census tracts designated by HUD as having a greater than 51% share of households with incomes in the Low-to-Moderate (LMI) range in the larger MSA the tract is part of, which are called LMI area by HUD, or “low income” tracts by FHFA. Below find a chart of the 10-year trend in the share of loans originated in this category by institution type for conventional and FHA loans:
In a recent post, we discussed the disposition of loans that are exiting forbearance programs. In the Ginnie Mae programs, many loans bought out of pools have received modifications or other workouts, and then redelivered to Ginnie Mae pools. However, we have historically observed that there are more loans bought out than re-delivered, even considering the time needed for the workout. As it turns out, there are other market-based outlets for these loans, which is more evident at the issuer level than in aggregate.
Below find a chart of buyout and securitization activities within Ginnie Mae program for Lakeview, the third-largest Ginnie Mae servicer as of April 2022.
While surging house prices continue to be the focus of market participants, the rental market is increasingly attracting the attention of policymakers, both because of the impact on inflation and the importance of this market for the economic wellbeing of lower-income households. In both cases, there is a widespread consensus regarding the need for new supply to ameliorate these problems. There are many factors that come into play regarding the construction of new rental units, including the availability of private and public sources of credit.
As part of its quarterly release of the "Financial Accounts of the United States", the Federal Reserve publishes data that allows us to break down the trend in total multifamily lending into major categories of credit risk holders: