According to Fannie Mae, a limited cashout refi loan is a mortgage that meets a variety of criteria and which restrictswith restriction of the amount the borrower can withdraw to not more than the lesser of 2% of the new refinance loan amount or $2,000. In addition, the funds must be utilized only for specific purposes including the payment of closing costs[1]. As the GSE’s have never made a limited cashout flag available in its loan level files, we have never been able to look at the properties of these transactions.
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It turns out however, that we can back into identifying some of these loans through the use of the Property Inspection Waver (PIW) flag. As we noted in a recent post, Fannie Mae sets a different standard for obtaining a PIW for a limited cashout refi than for other cashout refis[2]. In fact, the criteria for a limited cashout is the same for a non-cashout refi[3].

In a recent post we established a correlation between the 30 day dq rate of the loans in the reference pools for the Freddie Mac High LTV STACR CRT program and the share of these loans with high indebtedness as measured by DTI>45 for the month of May[1]. Recently Fannie Mae released the corresponding data for its CAS program and the results are striking. First, the pattern of results we saw for STACR is confirmed. This can be clearly seen if the results of the two programs are overlaid one over the other[2].

Earlier this month we discussed the new pool-level forbearance and delinquency data released by the GSE’s[1]. At that time, we noted that the delinquency data looked reasonable for May, but that the forbearance data fell short of other reported measures, particularly for Freddie Mac.

​The Ginnie Mae loan tape for May came in last night. The data showed the FHA overall delinquency rate jumped from 13.3% to 15.5% from last month.  This compares to overall rates based on pool level data for Fannie Mae and Freddie Mac of 5.4% and 6.2%, respectively. 

We received delinquency and forbearance information for the GSE pools late last night. By balance, the pools with such information cover over 99% of FHL and 92% of FNM pools, which is satisfactory.
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In terms of delinquency, Fannie Mae reported higher delinquency rate than Freddie Mac, which is in line with the relatively higher DTI’s seen in FNM deliveries in recent years. Freddie’s 30d delinquency rate reported in May was 2.47%, about 0.4% below the same figure for Fannie Mae .

We have written extensively on the mortgage market impact of the Covid-19 crisis, most recently on the first signs of delinquencies in the loans in the reference pools of the Freddie Mac Structured Agency Credit Risk (STACR) program[1]. In that post we noted the dispersion in 30-day average loan delinquencies by state for May 2020. In this note we look at the distribution of delinquencies in the same month across each of the 28 deals issued to date. We can see a distinct increase in the rate of delinquencies from the onset of the program through 2019, before falling early this year. What can account for this pattern?

In the five-year period from early 2013 to early 2019, we notice that there was a trend loosening in credit standards as measured by the share of loans in Agency securitized pools with debt-to-income ratios in excess of 45. The trend was exacerbated in 2018 due to rising mortgage rates weighing on mortgage production volumes. As rates fell back during the course of 2019, pressure to keep lending standards so loose eased, and fewer high-LTV loans were delivered to the Agencies.

​It seems natural to ask if this pattern spills over to the loans in the STACR pools. The chart below shows the share of such loans in high-LTV STACR issues since 2013, plotted against the 30-day May DQ rate for each.

Previously we have noted the connection between aggregate unemployment and delinquencies in the mortgage market[1]. With the release of state-wide delinquencies for FHA loans earlier this month, we can dig deeper into the connection between mortgage distress and the Covid-19 crisis. Based on data released by the Covid Tracking Project[2], and the Census Bureau on population, we can correlate infection rates with mortgage delinquency rates.

There is a lot of confusion in the market regarding the interpretation of new data released by the two GSE’s, the delinquency distribution and forbearance distribution for some new pools. The data available so far are very limited, but we can draw some tentative conclusions from what we have.  
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As of this morning we found 11 pools with both a delinquency distribution and a forbearance distribution from the eMBS data feed.  For 6 of them, forbearance numbers are the same as 30d delinquency numbers.  For 5 of them, forbearance numbers are bigger than the delinquency numbers, and often by a significant margin.