The recent release of pool-level buydown data led us to write a note contrasting the use of this product across Agencies, including Ginnie Mae[1]. In the process of writing this, we discovered that FHA, unlike the GSEs, also provides loan-level data for buydowns. This allowed us to run an analysis showing loan performance as measured by EPDs was better for FHA loans with buydowns than without, reflecting increased lender caution in using buydowns, which, on average, had higher credit scores than those without.
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The availability of loan-level data for FHA on this topic provides us with an opportunity to conduct an additional informative analysis specific to this program, which we document here. To start, let’s look at the share of the market with buydowns:

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With home prices at record high levels and mortgage rates at their record highs since the turn of this century, it’s natural to ask if the housing market will be the source of new systemic risk. Over the past year, we have written extensively about “mortgage winter”, a condition where housing demand is held back because of affordability, while at the same time, supply is constrained by current homeowners who are locked into properties by mortgages with rates far below those available in the prevailing market. This is what economists would call a “bad equilibrium”, a state of great strains in the market that tends to persist.
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While the housing finance industry is under great duress, the spillover to the broader economy remains limited, as for example, the labor market has held up well despite soaring borrowing costs. Within housing, the notable good economic news is that the extraordinary surge in house prices in the wake of the Covid-19 pandemic has resulted in an astounding 50% surge in the value of homeowner’s equity in real estate since Q1 2020 to over $30 trillion.

On June 29, 2023, both Fannie Mae and Freddie Mac announced enhancements to their MBS disclosures starting with the September monthly release[1]. The data covers active pools issued back to January 2022. As rates were quite low prior to this time, these disclosures cover the relevant period of high demand for buydowns:

We get a lot of requests at Recursion, the bulk of which never make it to these posts, but one that struck home recently was from a regulator who asked what we know about Lahaina. Given the scope of this tragedy, we thought it worth the effort to talk about what we do and don’t have. Specific to that location, the answer is relatively limited. The Agency disclosure data is provided at the state level. The population of Lahaina was 12,700 as of the 2020 Census, out of a population of the Island (County) of Maui of 164,000 and 1.4 million for the state of Hawaii overall. So, this level of detail seems unlikely to be sufficiently granular to provide a basis for analysis. However, it seems we can take a bottom-up approach that may yield something of value. This would be based on the HMDA data.
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HMDA data has the advantage of granularity down to the census tract level. Out of over 84,000 Census Tracts, we can identify 6 for Lahaina. We can then pull-down originations from HMDA:

​As we head into the end of summer, we note that the housing market remains locked into “Mortgage Winter”. Refinance activities are muted as mortgage rates are at a 22-year high. Even purchase mortgage applications are at the lowest level seen since 1995 as homeowners are not willing to give up their mortgages at historical low rates.  It’s not hard to imagine that in such a world we will see new behaviors as mortgage lenders struggle to remain viable. PennyMac stood out as one of the more creative lenders that was able to refinance the mortgages it services, indicated by the following chart:

Overview
The release of the Financial Accounts of the United States (also known as the Z.1[1]) is always an opportunity to learn about important structural changes in the mortgage market. This is particularly the case in our current environment of high home prices and borrowing costs which we call “mortgage winter”. In this note, we focus on the breakdown on the ownership of risk for single family mortgages. This is not the share of ownership of MBS; it is who bears the credit risk for the loans.

Unsurprisingly, the growth in single-family mortgage credit outstanding in Q1 grew by the smallest amount in almost 7 years in the first quarter of 2023:

In a previous note, we looked at mortgage trends derived from the recent release of 2022 HMDA data[1]. Of course, HMDA is a prime data source for analysts and policymakers who seek to understand how social and economic trends interact. The most discussed issue is the distribution of originations by race. Below find a bar chart for the share of originations by race annually from 2004-2022 by loan count:

The cherry blossoms are blooming, which means it’s time for the HMDA preliminary data set to be released. The dataset provides a social underpinning to the nation’s mortgage market and enhances our understanding of the behavior of borrowers and lenders. The 2022 dataset has been particularly eagerly awaited, as we get our view on the new world of high inflation and mortgage rates for the first time in decades. We start with origination volumes and get not just confirmation of the onset of mortgage winter, but some breakdown of its characteristics.