In a recent post we noted that prepayment speeds jumped in June, led by a startling 12.4% rise in 1-month FHA speeds to 36.1, likely due to a change in pool rules that prohibited loan buyouts from being re-securitized beginning on July 1. This bears looking into. If this jump is due to such a policy change then one would expect that prepayment speeds would rise more for banks than thinly capitalized nonbanks. Indeed, this is the case, and remarkably so.
Two data releases Monday night paint a picture of hyper-kinetic refinancing activity and new deterioration in GSE credit performance. First, all three agencies released prepayment data for June showing record refinancings, led by Ginnie Mae programs which skyrocketed by over 10 CPR to 37! This is a much greater increase than experienced by both Fannie Mae (+3.4 to 30.9), and Freddie Mac (+3.2 to 32.0). A significant portion of GNM CPR’s increase could derive from elevated involuntary prepays (CDR), quite possibly driven by the very recent change made to GNM pooling rules regarding reperforming loans.
The loan level tapes, delivered by the GSEs each month, unfortunately only contain delinquency data (DQ’s) at the pool level, unlike the Ginnie Mae tape which is at the loan level. One implication of this discrepancy is that state-level DQ’s can be calculated for the Ginnie programs but not, in general, for the GSE’s. An alternative approach for tracking GSE DQ’s at the loan level is to examine the performance of the reference loans in their Credit Risk Transfer (CRT) deals.
The sample of loans contained in the CRT tapes is a significant portion of the total deliveries to the entities but are not a complete sample. For CAS, the UPB represents 25%-30% of all FNM balances, while for STACR, it represents 50% of all FHL balances.
The primary question here is whether the CRT reference loans are a representative sample of the total for delinquencies. The way to validate the assumption is to compute a national aggregate of delinquencies for the whole set of loans in the CRT pools and compare these to the DQ data contained in the GSE monthly summaries.
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. 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.
*The Chart 1 and Chart 2 can be duplicated using the following two queries
Earlier this month we discussed the new pool-level forbearance and delinquency data released by the GSE’s. 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.
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.
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. 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.