A Bottom-Up Methodology to Computing the Size of the Agency Single-Family and Multi-Family CMO Market
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”.
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.
Commercial Mortgage Alert recently cited Recursion multifamily data in an article about issuance trends in this asset class.
“Fannie purchased $6.5 billion of multifamily loans last month through its delegated underwriting and servicing, or DUS, model, according to data from Recursion Co. That compares with $4.93 billion of such purchases in August and $4.51 billion in July.”
CMA also published a list of the top 10 issuers of Fannie Mae DUS loans YTD September.
Recursion recognizes the importance of the rental market in an environment of extreme unaffordability and is the premier provider of Agency data and analytics in this sector.
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In early May, Fannie Mae announced that its disclosures for its multifamily DUS program to include expanded social information, notably Area Median Income (AMI), went live. With the June release, we now have data for two months, a summary of which is found below:
To begin, we look at the big picture of new loans issued within the DUS program for May and June combined. (All data will be presented this way unless otherwise specified.)
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:
On March 24, the CFPB released HMDA data for 2021, with results obtained from 4,316 reporters, little changed from 4,472 reporters in 2020, but well below the 5,505 respondents reached in 2019. There are yet more companies are expected to report to 2021 HMDA. However, our experience from previous year indicates little change in big picture when reporting is finalized. The drop reported in the number of reporters in 2020 vs 2019 is largely due to a reduction in the number of loans that a bank needed to underwrite, requiring a report to be filed starting in 2020.
This data is used for market sizing by regulators and market participants, but it also represents a treasure trove of information regarding lender and consumer behavior across a wide variety of economic and market regimes. 2021 was notable for being the second year of the Covid-19 pandemic, which is associated with expansive monetary and fiscal policies and surging house prices.
This report will briefly assess trends across a variety of topics.
After surging by 47% in 2020 to 24.8 million from 2019, the number of loan activities reported in 2021 HMDA ticked up by just 2% to 25.2 million, almost 40% below the record high 41.5 million attained in 2003. Similarly, the number of loans originated reported in 2020 jumped by 57% from the prior year to 14.2 million, while in 2021 the figure rose by only 3% to 14.6 million, down by about one-third from the 2003 peak of 21.4 million.
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:
On February 15, 2022, Ginnie Mae announced it was adding a “Green Status” field to its multifamily disclosures, “giving investors information that supports their sustainable investing decisions and solutions.” Specifically, “The new securities disclosure allows investors to easily identify multifamily mortgage-backed securities whose collateral meets the requirements of FHA’s Multifamily “Green” Environmental Product Programs. This will assist investors in acquiring suitable investments to meet their ESG mandates and improve the liquidity of the securities in the secondary trading to other ESG investors.”
There are several broad observations that can be immediately taken from the new disclosure.
First, Green loans tend to be larger than others. As of February 2022, over 12% of loans in Ginnie Mae multi-family pools by loan count contain the green flag, accounting for almost 28% of UPB. As a result, green loans stand about twice as big as those which do not fall in this category. The bulk of these units are market rate apartments meeting the Green building requirements or loans in the affordability categories accounting for less than 1% of both total outstanding loan count and UPB.
With home prices and interest rates on the rise, policy focus becomes more clearly fixed on the subject of affordability. This is particularly true for renter households, which tend to have lower incomes than is the case for homeowning households. As a result, Recursion is in the process of upgrading its capabilities in this area, through its Multifamily Analyzer. A recent upgrade is the addition of payoff volumes for GNM multifamily programs, in addition to the new issuance volumes already in place. This provides a sense of how much of the total volume is due to expiring loans, and how much to new activity.