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January 2015
1
A MONTHLY CHARTBOOK
HOUSING FINANCE POLICY CENTER
HOUSING FINANCE AT A GLANCE
ABOUT THE CHARTBOOK
The Housing Finance Policy Center’s (HFPC) mission is to produce analyses and ideas that promote sound public policy, efficient markets, and access to economic opportunity in the area of housing finance. At A Glance, a monthly chartbook and data source for policymakers, academics, journalists, and others interested in the government’s role in mortgage markets, is at the heart of this mission.
We welcome feedback from our readers on how we can make At A Glance a more useful publication. Please email any comments or questions to [email protected].
HOUSING FINANCE POLICY CENTER STAFF
Laurie Goodman Center Director Ellen Seidman Senior Fellow Jim Parrott Senior Fellow Sheryl Pardo Associate Director of Communications Jun Zhu Senior Financial Methodologist Wei Li Senior Research Associate Bing Bai Research Associate I Karan Kaul Research Associate I Taz George Research Associate II Maia Woluchem Research Assistant Alison Rincon Center Administrator
INTRODUCTION Mortgage rates approaching record lows once again
Mortgage rates continued to fall over the last month with the 30-year conventional fixed currently averaging about 3.6 percent, and the 30-year FHA fixed about 3.25 percent. At these levels, conventional rates are just 35 basis points shy of their all-time record low of 3.3 percent set in November 2012, while FHA rates are already at new lows. While declines in both rates are driven by a weakening global economy and falling oil prices, the decline in FHA rates is especially impacted by the recently announced 50 basis points cut in FHA insurance premiums, fueling speculations of another refinance wave in 2015.
FHA reduces annual mortgage insurance premiums
President Obama recently announced his plan to cut insurance premiums for FHA mortgages by 50 basis points. The Administration expects this move to reduce monthly payments for 800,000 borrowers and enable 250,000 borrowers to purchase a new home. While current FHA borrowers will be required to refinance existing mortgages to take advantage of lower premiums, our analysis shows that a typical FHA borrower with an LTV of 96.5% on a $250,000 home will save roughly $100 in monthly mortgage payments.
MMI Fund will continue to grow in spite of the premium cut
The big question for FHA is whether this premium cut will have any adverse effect on the MMI fund. As we noted in a recent research brief and in a related blog, the MMI fund is not meeting its 2% capital reserve requirement due to deficits in the HECM book of business and the unprofitable 2001-2008 origination years. FHA’s recent book of business is profitable, and we expect it to remain so even after this premium cut. We believe this premium cut achieves good balance between improving the financial health of the MMI Fund and charging today’s borrowers more appropriately for the risks they represent.
Premium cut goes beyond just making payments affordable
FHA’s premium cut also has implications for the mortgage industry. As discussed in more detail in our latest blog post, the potential for cost savings as a
result of this premium cut will make FHA financing more cost effective than GSE financing for certain higher credit borrowers, leading to both market share gains and less adverse selection for the FHA. We believe this will eventually change the current industry dynamic and lead to increased competition between the FHA and the private mortgage insurers.
Comment letter on FHFA’s Proposed Rule Regarding FHLB Membership
We submitted a comment letter on FHFA’s proposed rule to prohibit captive insurers from becoming Federal Home Loan Bank (FHLB) members, a move that will effectively ban Real Estate Investment Trusts (REITs) from becoming FHLB members. We analyzed the proposal’s economic and practical considerations and concluded that REITs play an important role in the mortgage market, and benefit the FHLBs, their member institutions, and eventually mortgage borrowers. Ultimately, we urge the FHFA to take a more integrated view of the purpose REITs serve within the broader mortgage market, how captive insurers facilitate that purpose. We also propose a set of alternatives to better address the safety and soundless concerns described in the proposed rule.
INSIDE THIS ISSUE
• Ginnie Mae close to surpassing Freddie Mac in outstanding MBS (page 7)
• New non-agency securitization in 2014 virtually identical to 2013 (page 10)
• Originator profitability relatively flat through 2014, at a relatively low level (page 13)
• Houston, Dallas, and Denver remain the only top 15 MSAs above peak home prices (page 17)
• Just over half a million outstanding GSE loans remain eligible for HARP (page 25)
• Close to 7.5 million liquidations and 7.5 million modifications have occurred since 2007 (page 28)
• At 96.5 LTV, FHA is now more economical than PMI regardless of FICO score (page 33)
CONTENTS Overview
Market Size Overview Value of the US Residential Housing Market 6 Size of the US Residential Mortgage Market 6 Private Label Securities 7 Agency Mortgage-Backed Securities 7
Origination Volume and Composition
First Lien Origination Volume & Share 8
Mortgage Origination Product Type Composition (All Originations & Purchase Originations Only) 9
Securitization Volume and Composition Agency/Non-Agency Share of Residential MBS Issuance 10 Non-Agency MBS Issuance 10 Non-Agency Securitization 10
Agency Activity: Volumes and Purchase/Refi Composition Agency Gross Issuance 11 Percent Refi at Issuance 11
State of the Market
Mortgage Origination Projections Total Originations and Refinance Shares 12 Housing Starts and Home Sales 12
Originator Profitability Originator Profitability and Unmeasured Costs (OPUC) 13
Credit Availability for Purchase Loans
Borrower FICO Score at Origination Month 14 Combined LTV at Origination Month 14 Origination FICO and LTV by MSA 15
Housing Affordability National Housing Affordability Over Time 16 Affordability Adjusted for MSA-Level DTI 16
Home Price Indices National Year-Over-Year HPI Growth 17 Changes in CoreLogic HPI for Top MSAs 17
Negative Equity & Serious Delinquency Negative Equity Share 18 Loans in Serious Delinquency 18
GSEs under Conservatorship
GSE Portfolio Wind-Down Fannie Mae Mortgage-Related Investment Portfolio 19 Freddie Mac Mortgage-Related Investment Portfolio 19
CONTENTS
Effective Guarantee Fees & GSE Risk-Sharing Transactions Effective Guarantee Fees 20 Fannie Mae Upfront Loan-Level Price Adjustment 20 GSE Risk-Sharing Transactions 21
Serious Delinquency Rates Serious Delinquency Rates – Fannie Mae & Freddie Mac 22 Serious Delinquency Rates – Single-Family Loans & Multifamily GSE Loans 23
Refinance Activity Total HARP Refinance Volume 24 HARP Refinances 24
GSE Loans: Potential Refinances Loans Meeting HARP Pay History Requirements 25
Modification Activity
HAMP Activity New HAMP Modifications 26 Cumulative HAMP Modifications 26
Modification by Type of Action and Bearer of Risk Changes in Loan Terms for Modifications 27 Type of Modification Action by Investor and Product Type 27
Modifications and Liquidations Loan Modifications and Liquidations (By Year & Cumulative) 28
Modification Redefault Rates by Bearer of the Risk Redefault Rate after Modification (12 Months & 24 Months) 29
Agency Issuance
Agency Gross and Net Issuance Agency Gross Issuance 30 Agency Net Issuance 30
Agency Gross Issuance & Fed Purchases Monthly Gross Issuance 31 Fed Absorption of Agency Gross Issuance 31
Mortgage Insurance Activity MI Activity & Market Share 32 FHA MI Premiums for Typical Purchase Loan 33 Initial Monthly Payment Comparison: FHA vs. PMI 33
Related HFPC Work
Publications and Events 34
6
MARKET SIZE OVERVIEW Fed Flow of Funds data from 2014 Q3 indicates a modest increase in the total value of the US residential 1-4 unit housing market to $21.4 trillion from $21.2 trillion the previous quarter. Household equity drove most of this increase, growing by $178 billion. With credit standards remaining tight, mortgage debt increased by just $15 billion, though that was still the largest quarterly increase in the past two years. Agency MBS make up 56.8 percent of the total mortgage market, private-label securities make up 7.3 percent, and unsecuritized first liens at the GSEs, commercial banks, savings institutions, and credit unions make up 29.0 percent. Second liens comprise the remaining 6.9 percent.
OVERVIEW
Debt, household mortgages,
$9,833
9.9
11.5
21.4
0
5
10
15
20
25
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014Q3
($ trillions)
Value of the US Housing Market
Debt, household mortgages Household equity Total value
Sources: Federal Reserve Flow of Funds and Urban Institute.
5.6
2.9
0.7
0
1
2
3
4
5
6
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014Q3
($ trillions)
Size of the US Residential Mortgage Market Agency MBS Unsecuritized first liens Private Label Securities Second Liens
Sources: Federal Reserve Flow of Funds, Inside Mortgage Finance, Fannie Mae, Freddie Mac, eMBS and Urban Institute. Note: Unsecuritized first liens includes loans held by commercial banks, GSEs, savings institutions, and credit unions.
7
MARKET SIZE OVERVIEW OVERVIEW
As of November 2014, debt in the private-label securitization market totaled $720 billion and was split among prime (19.7 percent), Alt-A (43.7 percent), and subprime (36.6 percent) loans. In December 2014, outstanding securities in the agency market totaled $5.64 trillion and were 46.4 percent Fannie Mae, 27.3 percent Freddie Mac, and 26.3 percent Ginnie Mae.
0.31 0.26
0.14
0
0.2
0.4
0.6
0.8
1
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
($ trillions)
Private-Label Securities by Product Type Alt-A Subprime Prime
Sources: CoreLogic and Urban Institute. November 2014
2.6
1.5
5.6
0
1
2
3
4
5
6
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
($ trillions)
Fannie Mae Freddie Mac Ginnie Mae Total
Agency Mortgage-Backed Securities
Sources: eMBS and Urban Institute. December 2014
8
OVERVIEW
ORIGINATION VOLUME AND COMPOSITION
$0.43
$0.18
$0.01
$0.23
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
$3.5
$4.0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Q1-3
Volume, $ trillions
First Lien Origination Volume and Share
GSE securitization FHA/VA securitization PLS securitization Bank portfolio
First lien originations for 2014 through Q3 were far below their 2013 pace, totaling $850 billion. The share of bank portfolio originations rose to nearly 27 percent, while the GSE share has dropped to 51 percent from 61 percent in 2013, reflecting the curtailment of refinancing activity. FHA/VA originations account for another 21 percent, and the private label origination share remains less than one percent.
51.1%
21.5%
0.7%
26.7%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014Q1-3Sources: Inside Mortgage Finance and Urban Institute.
Share, percent
9
MORTGAGE ORIGINATION PRODUCT
TYPE Adjustable-rate mortgages (ARMs) accounted for as much as 29 percent of all new originations during the peak of the recent housing bubble in 2005 (top chart). They fell to a historic low of 1 percent in 2009, and have slowly grown to 6.5 percent of total originations in October 2014, 49 percent higher than a year ago. Fifteen-year FRMs, predominantly a refinance product, comprise 15.2 percent of new originations. If we exclude refinances (bottom chart), the share of 30-year FRMs in October 2014 stood at 86 percent, 15-year FRMs at 5.9 percent, and ARMs at 6.5 percent.
OVERVIEW
MORTGAGE ORIGINATION PRODUCT TYPE
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
All Originations Fixed-rate 30-year mortgage Fixed-rate 15-year mortgage Adjustable-rate mortgage Other
Sources: CoreLogic Prime Servicing and Urban Institute.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Purchase Loans Only
Fixed-rate 30-year mortgage Fixed-rate 15-year mortgage Adjustable-rate mortgage Other
Sources: CoreLogic Prime Servicing and Urban Institute. October 2014
October 2014
10
SECURITIZATION VOLUME AND COMPOSITION
OVERVIEW
1.4
16
$0
$1
$2
$3
$4
$5
$6
De
c-1
1
Fe
b-1
2
Ap
r-1
2
Jun
-12
Au
g-1
2
Oct
-12
De
c-1
2
Fe
b-1
3
Ap
r-1
3
Jun
-13
Au
g-1
3
Oct
-13
De
c-1
3
Fe
b-1
4
Ap
r-1
4
Jun
-14
Au
g-1
4
Oct
-14
De
c-1
4
($ billions)
Sources: Inside Mortgage Finance and Urban Institute. Note: Monthly figures equal total non-agency MBS issuance minus Re-REMIC issuance.
Non-Agency Securitization
Agency share 97.5%
Non-Agency share
2.5 % 0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
YT
D
Agency/Non-Agency Share of Residential MBS Issuance
Non-agency single-family MBS issuance has hovered at or below 3 percent of total issuance since early 2011, and this share is even lower if re-REMICs are excluded. The environment in 2014 was favorable for new non-agency deals, totaling $27.5 billion, virtually identical to the 2013 total of $27.4 billion. Over half of the new issuance in 2014, $18, was scratch and dent securitizations.
Sources: Inside Mortgage Finance and Urban Institute.
$-
$200
$400
$600
$800
$1,000
$1,200
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
($ billions) Re-REMICs and other
Scratch and dent
Alt A
Subprime
Prime
Sources: Inside Mortgage Finance and Urban Institute.
Non-Agency MBS Issuance
$2,056
$674 $10,002
$17,981 $1,597
0
2
2
01
4
11
AGENCY ACTIVITY: VOLUMES AND PURCHASE/ REFI COMPOSITION
Agency issuance continues declining, totaling $947.2 billion in 2014, much less than $1.57 trillion in 2013. In December 2014, refinances edged up to 55 and 53 percent of the GSEs’ business, as the average mortgage rate dropped under 4 percent. The Ginnie Mae market has always been more purchase-driven, with refinance volume of 33 percent. Note that the latest uptick does not include the effect of the drop in rates that occurred in late 2014 and early 2015 or the 50 basis point decrease in the FHA premium.
OVERVIEW
$0.39
$0.26
$0.30
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014Ann.
($ trillions)
Agency Gross Issuance
Fannie Mae Freddie Mac Ginnie Mae
Sources: eMBS and Urban Institute.
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Percent Refi at Issuance
Freddie Mac Fannie Mae Ginnie Mae Mortgage rate
Sources: eMBS and Urban Institute. Note: Based on at-issuance balance.
Percent refi Mortgage rate
December 2014
12
STATE OF THE MARKET
MORTGAGE ORIGINATION PROJECTIONS
The forecasts for mortgage originations in 2015 are mixed: The MBA sees a modest increase over 2014 of $62 billion to $1,184 billion, Fannie sees a small increase of $9 billion, and Freddie expects a decrease of $100 billion. And although lower projected interest rates have lifted the forecasted refinancing share slightly above last month’s estimates, both Freddie and Fannie still expect a decline in in 2015, in Freddie's case to 23 percent, while Fannie predicts a more modest drop to 37 percent. All three sources expect higher housing starts and home sales in the coming year.
Total Originations and Refinance Shares
Housing Starts and Homes Sales
Originations ($ billions) Refi Share (%)
Period Total, FNMA
estimate Total, FHLMC
estimate Total, MBA
estimate FNMA
estimate FHLMC
estimate MBA
estimate
2014 Q1 240 250 247 49 44 50
2014 Q2 301 320 297 38 38 40
2014 Q3 294 350 300 36 42 38
2014 Q4 289 280 278 40 38 46
2015 Q1 257 280 271 47 35 46
2015 Q2 303 330 328 35 25 38
2015 Q3 298 290 318 33 20 34
2015 Q4 276 200 272 35 20 36
FY 2011 1496 1492 1436 66 64 65
FY 2012 2154 2122 2044 72 70 71
FY 2013 1866 1925 1845 60 59 60
FY 2014 1124 1200 1122 40 43 43
FY 2015 1133 1100 1184 37 23 38 Sources: Mortgage Bankers Association, Fannie Mae, Freddie Mac and Urban Institute. Note: Shaded boxes indicate forecasted figures. All figures are estimates for total single-family market; column labels indicate source of estimate. Forecasts include interest rates as well. The yearly averages for 2011, 2012, and 2013 were 4.5%, 3.7%, and 4.0%, respectively. The three sources project an annual average rate of 4.2% for 2014. For 2015, their projections ranged from 4.0% to 4.3%.
Housing Starts, thousands Home Sales. thousands
Year Total, FNMA
estimate
Total, FHLMC
estimate
Total, MBA
estimate
Total, FNMA estimate
Total, FHLMC
estimate
Total, MBA
estimate
Existing, MBA
estimate
New, MBA
Estimate
FY 2011 609 610 612 4566 4570 4501 4200 301
FY 2012 781 780 783 5028 5030 5030 4661 369
FY 2013 925 920 930 5519 5520 5505 5073 432
FY 2014 996 1000 995 5369 5370 5365 4923 442
FY 2015 1170 1200 1110 5661 5600 5691 5188 503
Sources: Mortgage Bankers Association, Fannie Mae, Freddie Mac and Urban Institute.
Note: Shaded boxes indicate forecasted figures. All figures are estimates for total single-family market; column labels indicate source of estimate.
13
ORIGINATOR PROFITABILITY STATE OF THE MARKET
When originator profitability is high, mortgage rates tend to be less responsive to the general level of interest rates, as originators are capacity-constrained. When originator profitability is low, mortgage rates are far more responsive to the general level of interest rates. As interest rates have risen from the lows in 2012, and fewer borrowers find it economical to refinance, originator profitability is lower. Originator profitability is often measured as the spread between the rate the borrower pays for the mortgage (the primary rate) and the yield on the underlying mortgage-backed security in the secondary market (the secondary rate). However, with guarantee fees up dramatically from 2011 levels, the so-called primary-secondary spread has become a very imperfect measure to compare profitability across time. The measure used here, Originator Profitability and Unmeasured Costs (OPUC), is formulated and calculated by the Federal Reserve Bank of New York. It looks at the price at which the originator actually sells the mortgage into the secondary market and adds the value of retained servicing (both base and excess servicing, net of g-fees) as well as points paid by the borrower. In 2014, this measure was in the narrow range of 2.04 to 2.31, and now stands at 2.17.
Sources: Federal Reserve Bank of New York, updated monthly and available at this link: http://www.ny.frb.org/research/epr/2013/1113fust.html and Urban Institute. Note: OPUC stands for "originator profits and unmeasured costs" as discussed in Fuster et al. (2013). The OPUC series is a monthly (4-week moving) average.
2.17
0
1
2
3
4
5
6
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Dollars per $100 loan
Originator Profitability and Unmeasured Costs
December 2014
14
CREDIT AVAILABILITY FOR
Access to credit has become extremely tight, especially for borrowers with low FICO scores. The mean and median FICO scores on new originations have both drifted up about 46 and 50 points over the last decade. The 10th percentile of FICO scores, which represents the lower bound of creditworthiness needed to qualify for a mortgage, stood at 663 as of October 2014. Prior to the housing crisis, this threshold held steady in the low 600s. Median LTV levels at origination remain relatively high, at 89, which reflects the large number of FHA purchase originations.
CREDIT AVAILABILITY FOR PURCHASE LOANS
STATE OF THE MARKET
100
85 89
66
30
40
50
60
70
80
90
100
110
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
LTV
Combined LTV at Origination
90th percentile Mean Median 10th percentile
Sources: CoreLogic Servicing and Urban Institute. Note: Purchase-only loans.
801
740 750
663
500
550
600
650
700
750
800
850
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
FICO Score
Borrower FICO Score at Origination
90th percentile Mean Median 10th percentile
Sources: CoreLogic Servicing and Urban Institute. Note: Purchase-only loans.
October 2014
October 2014
15
CREDIT AVAILABILITY FOR CREDIT AVAILABILITY FOR PURCHASE LOANS
STATE OF THE MARKET
Credit has been tight for all borrowers with less-than-stellar credit scores, but there are significant variations across MSAs. For example, the mean origination FICO for borrowers in San Francisco- Redwood City- South San Francisco, CA is 770, while in Cleveland-Elyria OH it is 725. Across all MSAs, lower average FICO scores tend to be correlated with high average LTVs, as these MSAs rely heavily on FHA/VA financing.
60
65
70
75
80
85
90
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100
700
710
720
730
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750
760
770
780
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Origination LTV Origination FICO
Origination FICO and LTV by MSA Mean origination FICO score Mean origination LTV
Sources: CoreLogic Servicing as of October 2014 and Urban Institute. Note: Purchase-only loans.
16
HOUSING AFFORDABILITY STATE OF THE MARKET
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Ratio
Affordability Adjusted for MSA-Level DTI
Sources: CoreLogic, US Census, Freddie Mac and UI calculations based on NAR methodology. Note: Index is calculated relative to home prices in 2000-03. A ratio above 1 indicates higher affordability in October 2014 than in 2000-03.
Credit Bubble
$200,000
$282,095
$238,861
$120
$140
$160
$180
$200
$220
$240
$260
$280
$300
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
Housing Prices ($ thousands)
National Housing Affordability Over Time
Median sales price Max affordable price
Max affordable price at 6.0% rateHome prices are still very affordable by historical standards, despite increases over the last three years. Even if interest rates rose to 6 percent, affordability would be at the long-term historical average.
Sources: CoreLogic, US Census, Freddie Mac and Urban Institute. Note: The maximum affordable price is the house price that a family can afford putting 20 percent down, with a monthly payment of 28 percent of median family income, at the Freddie Mac prevailing rate for 30-year fixed-rate mortgage, and property tax and insurance at 1.75 percent of housing value.
October 2014
17
MSA
HPI changes (%) % Rise needed to achieve
peak 2000 to peak Peak to trough
Trough to current
United States 98.9 -32.4 28.9 14.8
New York-Jersey City-White Plains NY-NJ 115.6 -20.0 17.5 6.4
Los Angeles-Long Beach-Glendale CA 181.5 -39.1 43.6 14.3
Chicago-Naperville-Arlington Heights IL 65.2 -36.4 21.9 29.1
Atlanta-Sandy Springs-Roswell GA 40.8 -33.6 38.4 8.8
Washington-Arlington-Alexandria DC-VA-MD-WV 159.7 -33.3 27.4 17.7
Houston-The Woodlands-Sugar Land TX 44.3 -12.6 31.9 -13.3
Phoenix-Mesa-Scottsdale AZ 126.4 -52.7 48.8 42.2
Riverside-San Bernardino-Ontario CA 194.6 -53.3 48.4 44.2
Dallas-Plano-Irving TX 38.3 -13.6 27.2 -9.0
Minneapolis-St. Paul-Bloomington MN-WI 74.0 -30.5 25.2 14.9
Seattle-Bellevue-Everett WA 94.2 -31.8 35.6 8.1
Denver-Aurora-Lakewood CO 36.3 -14.4 35.2 -13.6
Baltimore-Columbia-Towson MD 128.5 -25.5 7.8 24.6
San Diego-Carlsbad CA 148.7 -38.2 37.3 17.8
Anaheim-Santa Ana-Irvine CA 162.5 -36.8 37.8 14.8
Sources: CoreLogic HPIs as of November 2014 and Urban Institute. Note: This table includes the largest 15 Metropolitan areas by mortgage count.
Changes in CoreLogic HPI for Top MSAs Despite rising 28.9 percent from the trough, national house prices still must grow 14.8 percent to reach pre-crisis peak levels. At the MSA level, three of the top 15 MSAs have reached their peak HPI– Houston, TX; Dallas, TX; and Denver, CO. Two MSAs particularly hard hit by the boom and bust– Phoenix, AZ and Riverside, CA– would need to rise more than 40 percent to return to peak levels.
HOME PRICE INDICES STATE OF THE MARKET
CoreLogic HPI
5.5% Zillow HVI
6.0%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Year-over-year growth rate
National Year-Over-Year HPI Growth
Sources: CoreLogic, Zillow, and Urban Institute.
The strong year-over-year house price growth through 2013 has slowed somewhat in 2014, as indicated by both the repeat-sales HPI from CoreLogic and hedonic index from Zillow.
November2014
18
STATE OF THE MARKET
NEGATIVE EQUITY & SERIOUS DELINQUENCY
Negative equity 10.3%
Near or in negative equity
12.9%
0%
5%
10%
15%
20%
25%
30%
35%
3Q
09
4Q
09
1Q
10
2Q
10
3Q
10
4Q
10
1Q
11
2Q
11
3Q
11
4Q
11
1Q
12
2Q
12
3Q
12
4Q
12
1Q
13
2Q
13
3Q
13
4Q
13
1Q
14
2Q
14
3Q
14
Negative Equity Share
Sources: CoreLogic and Urban Institute.
With housing prices appreciating through the first three quarters of 2014, residential properties in negative equity (LTV greater than 100) as a share of all residential properties with a mortgage has dropped to 10.3 percent. Residential properties in near negative equity (LTV between 95 and 100) comprise another 2.6 percent.
4.7%
2.4%
2.3%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
3Q
00
1Q
01
3Q
01
1Q
02
3Q
02
1Q
03
3Q
03
1Q
04
3Q
04
1Q
05
3Q
05
1Q
06
3Q
06
1Q
07
3Q
07
1Q
08
3Q
08
1Q
09
3Q
09
1Q
10
3Q
10
1Q
11
3Q
11
1Q
12
3Q
12
1Q
13
3Q
13
1Q
14
3Q
14
Loans in Serious Delinquency/Foreclosure
Percent of loans 90days delinquent or inforeclosure
Percent of loans inforeclosure
Percent of loans 90days delinquent
Sources: Mortgage Bankers Association and Urban Institute.
Serious delinquencies and foreclosures continue to decline with the housing recovery, but remain quite high relative to the early 2000s. Loans 90 days delinquent or in foreclosure totaled 4.7 percent in the third quarter of 2014, down from 5.7 percent for the same quarter a year earlier.
19
In August 2014, the GSEs both passed below their year-end 2014 portfolio cap, and have continued to shrink since. Compared to November 2013, Fannie has contracted by 14.5 percent, and Freddie Mac by 13.9 percent. They are shrinking their less liquid assets (mortgage loans and non-agency MBS) at close to the same pace that they are shrinking their entire portfolio. The 2015 portfolio cap for the GSEs is 399.181 billion.
GSE PORTFOLIO WIND-DOWN GSES UNDER CONSERVATORSHIP
0
100
200
300
400
500
600
700
800
900
2006 2007 2008 2009 2010 2011 2012 2013 2014
($ billions)
FHLMC MBS in portfolio Non-FHLMC agency MBS Non-agency MBS Mortgage loans
Sources: Freddie Mac and Urban Institute.
Freddie Mac Mortgage-Related Investment Portfolio Composition
0
100
200
300
400
500
600
700
800
900
2006 2007 2008 2009 2010 2011 2012 2013 2014
($ billions)
Fannie MBS in portfolio Non-FNMA agency MBS Non-agency MBS Mortgage loans
Sources: Fannie Mae and Urban Institute.
Fannie Mae Mortgage-Related Investment Portfolio Composition
0
100
200
300
400
500
600
700
800
2012 2013 2014
Current size: $424.0 billion 2014 cap: $469.625 billion Shrinkage year-over-year: 14.5% Shrinkage in less-liquid assets year-over-year: 10.1%
November 2014 November 2014
0
100
200
300
400
500
600
700
2012 2013 2014
Current size: $402.0 billion 2014 cap: $469.625 billion Shrinkage year-over-year: 13.9% Shrinkage in less-liquid assets year-over-year: 17.8%
November 2014 November 2014
20
GSES UNDER CONSERVATORSHIP
EFFECTIVE GUARANTEE FEES AND GSE RISK-SHARING TRANSACTIONS
Fannie Mae Upfront Loan-Level Price Adjustments (LLPAs)
LTV
Credit Score ≤60 60.01 – 70 70.01 – 75 75.01 – 80 80.01 – 85 85.01 – 90 90.01 –
95 95.01 – 97
> 740 0.00% 0.25% 0.25% 0.50% 0.50% 0.50% 0.50% 0.50%
720 – 739 0.00% 0.25% 0.50% 0.75% 0.75% 0.75% 0.75% 0.75%
700 – 719 0.00% 0.75% 1.00% 1.25% 1.25% 1.25% 1.25% 1.25%
680 – 699 0.25% 0.75% 1.50% 2.00% 1.75% 1.50% 1.50% 1.25%
660 – 679 0.25% 1.25% 2.25% 2.75% 3.00% 2.50% 2.50% 2.00%
640 – 659 0.75% 1.50% 2.75% 3.25% 3.50% 3.00% 3.00% 2.50%
620 – 639 0.75% 1.75% 3.25% 3.25% 3.50% 3.50% 3.50% 3.25%
< 620 0.75% 1.75% 3.25% 3.25% 3.50% 3.50% 3.50% 3.50%
Product Feature (Cumulative)
Investment Property 1.75% 1.75% 1.75% 3.00% 3.75% N/A N/A N/A
2-unit property 1.00% 1.00% 1.00% 1.00% 1.00% N/A N/A N/A
3-4 unit property 1.00% 1.00% 1.00% N/A N/A N/A N/A N/A
Condominiums 0.00% 0.00% 0.00% 0.75% 0.75% 0.75% 0.75% 0.75% Sources: Fannie Mae and Urban Institute. Note: Adverse Market Delivery Charge (AMDC) of 0.250% has been added to the LLPA numbers in the matrix by LTV and credit score. Freddie Mac charges very comparable LLPAs.
41.2
63.5
32.4
0
10
20
30
40
50
60
70
1Q
09
2Q
09
3Q
09
4Q
09
1Q
10
2Q
10
3Q
10
4Q
10
1Q
11
2Q
11
3Q
11
4Q
11
1Q
12
2Q
12
3Q
12
4Q
12
1Q
13
2Q
13
3Q
13
4Q
13
1Q
14
2Q
14
3Q
14
Effective Guarantee Fees
Fannie Mae single-family effective g-fee rate
Fannie Mae single-family averagecharged g-fee on new acquisitions
Freddie Mac management and g-feerate
Fannie’s average charged g-fee on new single-family originations was 63.5 bps in Q3 2014, up slightly from 62.6 in the previous quarter. This is a marked increase over 2012 (39.9 bps) and 2011 (28.8 bps), and has contributed to the GSEs’ profits. Fannie’s 2014 loan-level price adjustments (LLPAs) are shown in the second table. The 25 bp Adverse Market Delivery Charge has been added to these upfront numbers. The FHFA asked for input about the level of g-fees and LLPAs in summer of 2014.
Sources: Fannie Mae, Freddie Mae and Urban Institute. Note: Freddie only reports the effective g-fee on the entire book of business.
21
Sources: Fannie Mae, Freddie Mac and Urban Institute. Note: Classes A-H, M-1H, M-2H, and B-H are reference tranches only. These classes are not issued or sold. The risk is retained by Fannie Mae and Freddie Mac. “CE” = credit enhancement. Under “Rating,” “F” = Fitch, “M” = Moody’s, “D” = DBRS.
GSE RISK-SHARING TRANSACTIONS
GSES UNDER CONSERVATORSHIP
Freddie Mac – Structured Agency Credit Risk (STACR)
Date Transaction Reference Pool Size ($ millions)
July 24, 2013 STACR Series 2013 - DN1 $22,584.40
November 12, 2013 STACR Series 2013 - DN2 $35,327.30
February 6, 2014 STACR Series 2014 - DN1 $32,076.80
April 2, 2014 STACR Series 2014 - DN2 $28,146.98
August 6, 2014 STACR Series 2014 - DN3 $19,746.23
August 6, 2014 STACR Series 2014 – HQ1 $9,974.68
September 10, 2014 STACR Series 2014 – HQ2 $33,434.43
October 23, 2014 STACR Series 2014 – DN4 $15,740.71
October 23, 2014 STACR Series 2014 – HQ3 $8,000.61
Freddie Mac Total Reference Collateral $205,032.14
Percent of Freddie Mac’s Total Book of Business 13.3%
Fannie Mae – Connecticut Avenue Securities (CAS)
Date Transaction Reference Pool Size ($ millions)
October 24, 2013 CAS 2013 – C01 $26,756.40
January 14, 2014 CAS 2014 – C01 $29,308.70
May 28, 2014 CAS 2014 – C02 $60,818.48
July 25, 2014 CAS 2014 – C03 $78,233.73
November 19, 2014 CAS 2014 – C04 $58,872.70
Fannie Mae Total Reference Collateral $248,990.01
Percent of Fannie Mae’s Total Book of Business 9.5%
Details of Fannie Mae’s latest capital markets transaction, CAS 2014 – C04
Class Amount ($ millions) Tranche Thickness (%) CE (%) Rating Coupon (1mL+)
1A-H $34,770.00 97 3 NR --
1M-1, 1M-1H, Total $340.5, $17.9, $358.4 1.0 2 M: Baa3 , D: BBB 195
1M-2, 1M-2H, Total $578.5, $30.9, $609.4 1.7 .3 NR 490
1B-H $107.50 0.3 0 NR --
2A-H $17,351.40 96.25 3.75 NR --
2M-1, 2M-1H, Total $205, $11.3, $216.3 1.2 2.55 M: Baa2, D: BBB (low) 210
2M-2, 2M-2H, Total $325, $17.5, $342.5 1.9 0.65 NR 500
2B-H $117.20 0.65 0 NR --
Reference Pool Size $53,872.70 100 -- -- --
22
SERIOUS DELINQUENCY RATES AT THE GSEs
Serious delinquency rates of GSE loans continue to decline as the legacy portfolio is resolved and the pristine, post-2009 book of business exhibits very low default rates. As of November 2014, 1.91 percent of both the Fannie and Freddie portfolio were seriously delinquent, down from 2.44 percent for Fannie and 2.43 percent for Freddie in November 2013.
GSES UNDER CONSERVATORSHIP
SERIOUS DELINQUENCY RATES
1.64%
3.56%
1.91%
0%
2%
4%
6%
8%
10%
12%
14%
16%
2006 2007 2008 2009 2010 2011 2012 2013 2014
Percentage of total loans
Serious Delinquency Rates–Fannie Mae
Single-family: Non-credit enhanced Single-family: Credit enhanced Single-family: Total
Sources: Fannie Mae and Urban Institute.
1.78%
3.89%
1.91%
2.69%
0%
1%
2%
3%
4%
5%
6%
7%8%
9%
10%
2006 2007 2008 2009 2010 2011 2012 2013 2014
Percentage of total loans
Serious Delinquency Rates–Freddie Mac
Single-family: Non-credit enhanced Single-family: Credit enhanced
Single-family: Total PMI Credit Enhanced*
Sources: Freddie Mac and Urban Institute. Note*: Following a change in Freddie reporting in September 2014, we switched from reporting credit enhanced delinquency rates to PMI credit enhanced delinquency rates.
November 2014
November 2014
23
SERIOUS DELINQUENCY RATES GSES UNDER CONSERVATORSHIP
Serious delinquencies for FHA and GSE single-family loans continue to decline, but remain high relative to 2005-2007. FHA delinquencies are declining from a higher relative starting point. GSE multifamily delinquencies have declined to pre-crisis levels, though they did not reach problematic levels even in the worst years.
0.05% 0.03%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Percentage of total loans
Serious Delinquency Rates–Multifamily GSE Loans Fannie Mae Freddie Mac
Sources: Fannie Mae, Freddie Mac and Urban Institute. Note: Multifamily serious delinquency rate is the unpaid balance of loans 60 days or more past due, divided by the total unpaid balance.
November 2014
6.18%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
1Q
05
3Q
05
1Q
06
3Q
06
1Q
07
3Q
07
1Q
08
3Q
08
1Q
09
3Q
09
1Q
10
3Q
10
1Q
11
3Q
11
1Q
12
3Q
12
1Q
13
3Q
13
1Q
14
3Q
14
Serious Delinquency Rates–Single-Family Loans
FHA Fannie Mae Freddie Mac
Sources: Fannie Mae, Freddie Mac, MBA Delinquency Survey and Urban Institute. Note: Serious delinquency is defined as 90 days or more past due or in the foreclosure process.
1.96%
24
REFINANCE ACTIVITY GSES UNDER CONSERVATORSHIP
The Home Affordable Refinance Program (HARP) refinances have begun to slow. Two factors are responsible for this: (1) higher interest rates, leaving fewer eligible loans where refinancing is economically advantageous (in-the-money), and (2) a considerable number of borrowers who have already refinanced. Note that these latest numbers do not reflect the dramatic drop in interest rates in the Q4 2014 and early 2015. Nonetheless, HARP refinances total 3.246 million since the Q2 2009 program inception, accounting for 16.1 percent of all GSE refinances in this period.
HARP Refinances
October 2014
Year-to-date 2014
Inception to date
2013 2012 2011
Total refinances 138,908 1,243,550 20,115,801 4,081,911 4,750,530 3,229,066
Total HARP refinances 13,745 188,850 3,246,806 892,914 1,074,769 400,024
Share 80–105 LTV 75.7% 72.2% 69.9% 56.4% 56.4% 85.0%
Share 105–125 LTV 15.6% 17.3% 17.2% 22.4% 22.4% 15.0%
Share >125 LTV 8.8% 10.6% 12.9% 21.2% 21% 0%
All other streamlined refinances
20,412 227,915 3,481,114 735,210 729,235 785,049
Sources: FHFA Refinance Report and Urban Institute.
8 5
14
0
20
40
60
80
100
120
140
160
Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14
(thousands)
Total HARP Refinance Volume
Fannie Mae Freddie Mac Total
October 2014
25
To qualify for HARP, a loan must be originated before the June 2009 cutoff date, have a marked-to-market loan-to-value (MTM LTV) ratio above 80, and have no more than one delinquent payment in the past year and none in the past six months. There are 813,850 eligible loans, but 38 percent are out-of-the-money because the closing cost would exceed the long-term savings, leaving 502,867 loans where a HARP refinance is both permissible and economically advantageous for the borrower. Loans below the LTV minimum but meeting all other HARP requirements are eligible for GSE streamlined refinancing. Of the 6,682,942 loans in this category, 5,590,172 are in-the-money. More than two thirds of the GSE book of business that meets the pay history requirements was originated after the June, 2009 cutoff date. FHFA Director Mel Watt announced in May 2014 that they are not planning to extend the date, as too few borrowers (1,023,066 by our estimate) would benefit from the change.
GSES UNDER CONSERVATORSHIP
GSE LOANS: POTENTIAL REFINANCES
Sources: CoreLogic Prime Servicing as of November 2014. Note: Figures are scaled up from source data to account for data coverage of the GSE active loan market (based on MBS data from eMBS). Shaded box indicates HARP-eligible loans that are in-the-money.
Total loan count 26,904,530
Loans that do not meet pay history requirement 957,791
Loans that meet pay history requirement: 25,946,739
Pre-June 2009 origination 7,496,793
Post-June 2009 origination 18,449,947
Loans Meeting HARP Pay History Requirements
Pre-June 2009
LTV category In-the-money Out-of-the-money Total
≤80 5,590,172 1,092,770 6,682,942
>80 502,867 310,983 813,850
Total 6,093,039 1,403,753 7,496,793
Post-June 2009
LTV category In-the-money Out-of-the-money Total
≤80 4,059,077 11,526,375 15,585,452
>80 1,023,066 1,841,429 2,864,494
Total 5,082,143 13,367,804 18,449,947
HAMP ACTIVITY
26
In 2014 Q3, new HAMP activity declined in terms of trial and permanent mods relative to a year prior. New trial mods have averaged just over 30,000 per quarter in 2014, compared to over 45,000 per quarter in 2013. Cumulative permanent HAMP mods started now total over 1.4 million, and 961,700 of these are active permanent mods.
MODIFICATION ACTIVITY
2014 Q3
30
3.2 0
50
100
150
200
250
300
350
400
450
2009 2010 2011 2012 2013 2014
Number of mods (thousands)
New HAMP Modifications New Trial Mods Started New Permanent Mods Started New Active Permanent Mods Started
Sources: U.S. Treasury Making Home Affordable and Urban Institute.
2.2
1.4
0.96
0
0.5
1
1.5
2
2.5
2009 Q1 2009 Q3 2010 Q1 2010 Q3 2011 Q1 2011 Q3 2012 Q1 2012 Q3 2013 Q1 2013 Q3 2014 Q1 2014 Q3
Number of mods (millions)
Cumulative HAMP Modifications All Trials Mods Started All Permanent mods started Active Permanent Mods
Sources: U.S. Treasury Making Home Affordable and Urban Institute.
33
27
The share of principal reduction modifications peaked at 20 percent in December 2012 and has now dropped to 6.8 percent. This is to be expected, as increasing home prices have increased equity, reducing the need for principal reduction and making such modifications less likely to be net-present-value positive. Portfolio loans are the most likely candidates for principal reduction, followed by private investor loans, because the GSEs and FHA/VA generally do not allow this type of modification.
MODIFICATION ACTIVITY
MODIFICATION BY TYPE OF ACTION AND BEARER OF RISK
Sources: OCC Mortgage Metrics Report for the Third Quarter of 2014 and Urban Institute. Note: This table presents modifications of each type as a share of total modifications. Columns sum to over 100% because loans often receive modifications with multiple features. *Processing constraints at some servicers prevented them from reporting specific modified term(s).
Sources: OCC Mortgage Metrics Report for the Third Quarter of 2014 and Urban Institute. Note: This table presents modifications of each type as a share of total modifications. Columns sum to over 100% because loans often receive modifications with multiple features. *Processing constraints at some servicers prevented them from reporting specific modified term(s).
Changes in Loan Terms for Modifications
Modification Quarter One quarter
% change One year % change
13Q2 13Q3 13Q4 14Q1 14Q2 14Q3
Capitalization 81.6 83.5 87.7 74.3 59 71.1 -20.6 -14.8
Rate reduction 81.0 78.9 76.7 73.3 71.9 66.5 -7.5 -15.7
Rate freeze 5.2 5.5 7 6.5 7.1 7.5 5.9 38.2
Term extension 67.7 69.3 75.9 78 84 82.0 -2.4 18.4
Principal reduction 12.2 13.6 10.5 8.1 5 6.8 36.7 -49.7
Principal deferral 20.5 25.3 30.6 25.1 11.5 15.9 37.8 -37.3
Not reported* 1.5 2.2 0.7 0.7 0.7 0.5 -28.0 -77.4
Type of Modification Action by Investor and Product Type
Fannie Mae Freddie Mac
Government- guaranteed
Private Investor
Portfolio Overall
Capitalization 98.8% 96.8% 31.9% 93.9% 93.3% 71.1%
Rate reduction 48.8% 53.8% 77.4% 71.0% 69.4% 66.5%
Rate freeze 9.4% 5.6% 7.3% 5.0% 10.4% 7.5%
Term extension 93.5% 95.2% 97.5% 28.4% 59.0% 82.0%
Principal reduction 0.1% 0.0% 0.4% 21.4% 27.8% 6.8%
Principal deferral 14.3% 14.9% 12.1% 21.2% 24.5% 15.9%
Not reported* 0.1% 0.0% 0.6% 1.2% 0.7% 0.5%
MODIFICATIONS AND LIQUIDATIONS
28
MODIFICATION ACTIVITY
Total modifications (HAMP and proprietary) are now roughly equal to total liquidations. Hope Now reports show 7,343,260 borrowers have received a modification since Q3 2007, compared with 7,454,470 liquidations in the same period. Both liquidation and modification activity are slowing significantly, and through November 2014 ended far below their comparable 2013 total. Only 33,572 modifications were completed in November 2014, a 50 percent reduction from the monthly rate in early 2013.
13
7.7
33
1.7
57
9.5
0
200
400
600
800
1,000
1,200
1,400
1,600
2007 (Q3-Q4)
2008 2009 2010 2011 2012 2013 2014(Ann.)
Number of loans (thousands)
Loan Modifications and Liquidations
HAMP mods
Proprietary mods
Liquidations
Sources: Hope Now Reports and Urban Institute. Note: Liquidations includes both foreclosure sales and short sales. Annualized figure based on data from November 2014.
1.4
5
.9
7.5
0
1
2
3
4
5
6
7
8
2007 (Q3-Q4)
2008 2009 2010 2011 2012 2013 2014 YTD
Number of loans (millions)
HAMP mods
Proprietary mods
Liquidations
Sources: Hope Now Reports and Urban Institute. Note: Liquidations includes both foreclosure sales and short sales.
Cumulative Modifications and Liquidations
29
MODIFICATION REDEFAULT RATES BY BEARER OF THE RISK
MODIFICATION ACTIVITY
Redefault rates on modified loans have come down dramatically from 2008 to 2013. For the period as a whole, the steepest drops have been on private label modifications. More recently, there have been sharp declines in the redefault rates on government-guaranteed modifications, although this product type still has higher redefault rates than others.
0%
10%
20%
30%
40%
50%
60%
70%
80%
2008 2009 2010 2011 2012 2013
Re
de
fau
lt r
ate
Year of modification
Redefault Rate 12 Months after Modification
Fannie Mae
Freddie Mac
Government-guaranteed
Private
Portfolio Loans
Overall
Sources: OCC Mortgage Metrics Report for the Third Quarter of 2014 and Urban Institute.
0%
10%
20%
30%
40%
50%
60%
70%
80%
2008 2009 2010 2011 2012
Re
de
fau
lt r
ate
Year of modification
Redefault Rate 24 Months after Modification
Fannie Mae
Freddie Mac
Government-guaranteed
Private
Portfolio loans
Overall
Sources: OCC Mortgage Metrics Report for the Third Quarter of 2014 and Urban Institute.
30
Agency Gross Issuance Agency Net Issuance
AGENCY GROSS AND NET ISSUANCE
AGENCY ISSUANCE
Issuance Year
GSEs Ginnie Mae Total
2000 $360.6 $102.2 $462.8
2001 $885.1 $171.5 $1,056.6
2002 $1,238.9 $169.0 $1,407.9
2003 $1,874.9 $213.1 $2,088.0
2004 $872.6 $119.2 $991.9
2005 $894.0 $81.4 $975.3
2006 $853.0 $76.7 $929.7
2007 $1,066.2 $94.9 $1,161.1
2008 $911.4 $267.6 $1,179.0
2009 $1,280.0 $451.3 $1,731.3
2010 $1,003.5 $390.7 $1,394.3
2011 $879.3 $315.3 $1,194.7
2012 $1,288.8 $405.0 $1,693.8
2013 $1,176.6 $393.6 $1,570.1
2014 $650.92 $296.26 $947.18
%Change year-over-year
-44.7% -24.7% -39.7%
Sources: eMBS and Urban Institute. Note: Dollar amounts are in billions..
Issuance Year
GSEs Ginnie Mae Total
2000 $159.8 $29.3 $189.1
2001 $367.8 -$9.9 $357.9
2002 $357.6 -$51.2 $306.4
2003 $335.0 -$77.6 $257.4
2004 $83.3 -$40.1 $43.2
2005 $174.4 -$42.2 $132.1
2006 $313.6 $0.3 $313.8
2007 $514.7 $30.9 $545.5
2008 $314.3 $196.4 $510.7
2009 $249.5 $257.4 $506.8
2010 -$305.5 $198.2 -$107.3
2011 -$133.4 $149.4 $16.0
2012 -$46.5 $118.4 $71.9
2013 $66.5 $85.8 $152.3
2014 $30.3 $59.8 $90.1
%Change year-over-year
-54.4% -30.3% -40.8%
Sources: eMBS and Urban Institute. Note: Dollar amounts are in billions.
While refinancing activity fell off due to higher interest rates through the course of 2014, newly reduced rates and lowered FHA premiums make the fate of agency issuance uncertain. Agency gross issuance in 2014 totaled $947 billion, a 40 percent decline year-over-year. Net issuance, which excludes repayments, prepayments, and refinances on outstanding mortgages, remains low and dominated by Ginnie Mae. This is unsurprising, given the increased role of FHA and VA since the crisis.
31
AGENCY GROSS AND NET ISSUANCE BY MONTH
AGENCY ISSUANCE
AGENCY GROSS ISSUANCE & FED PURCHASES
0
50
100
150
200
250
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
($ billions)
Monthly Gross Issuance
Fannie Mae Freddie Mac Ginnie Mae
Sources: eMBS, Federal Reserve Bank of New York and Urban Institute.
While government and GSE lending have dominated the mortgage market since the crisis, there has been a change in the mix. The Ginnie Mae share reached a peak of 28 percent of total agency issuance in 2010, declined to 25 percent in 2013, and has since then risen to 29 percent in December 2014. The 2014 increase in the Ginnie Mae share reflects the decline in refinance activity, as Ginnie Mae is less impacted by this decline.
0
50
100
150
200
250
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
($ billions)
Fed Absorption of Agency Gross Issuance
Gross issuance Total Fed purchases
Sources: eMBS, Federal Reserve Bank of New York and Urban Institute.
In 2013, the Fed absorbed nearly 50 percent of agency gross issuance. In Q1 2014, the Fed began to taper, but gross issuance dropped even more, and Fed absorption reached 74 percent. In Q2 and Q3, gross issuance increased and the Fed continued to taper, resulting in the Fed absorbing a lower percent of gross issuance. In October, the Fed announced the end of its purchase program. However, buying will continue at a much reduced level, as the Fed is likely to keep reinvesting funds from pay downs on mortgages and agency debentures into the mortgage market. In December 2014, total Fed purchase stabilized at $21.7 billion, yielding 23.6 percent Fed absorption of gross issuance, down from October’s 27 percent.
December 2014
December 2014
32
MORTGAGE INSURANCE ACTIVITY
AGENCY ISSUANCE
41
.3%
3
4.0
%
24
.7%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014Q1-3
MI Market Share Total private primary MI FHA VA
Sources: Inside Mortgage Finance and Urban Institute.
$54.0
$38.0
$31.1
$123.0
0
50
100
150
200
1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14
Total private primary MI FHA VA Total
MI Activity
Sources: Inside Mortgage Finance and Urban Institute.
Overall mortgage insurance activity experienced a second consecutive quarter of significant increase in Q3 2014, reaching $123 billion. Private mortgage insurers led the way, with a $10 billion quarterly increase and a jump in market share to 44 percent (41 percent for 2014 overall). The FHA share dropped to 30.8 percent for the quarter, and 34 percent for 2014 overall, despite an uptick in Q3 endorsements to $38 billion from $36 billion.
33
MORTGAGE INSURANCE ACTIVITY
AGENCY ISSUANCE
FHA MI Premiums for Typical Purchase Loan
Case number date Upfront mortgage insurance premium
(UFMIP) paid Annual mortgage insurance
premium (MIP) 1/1/2001 - 7/13/2008 150 50
7/14/2008 - 4/5/2010* 175 55
4/5/2010 - 10/3/2010 225 55
10/4/2010 - 4/17/2011 100 90
4/18/2011 - 4/8/2012 100 115
4/9/2012 - 6/10/2012 175 125
6/11/2012 - 3/31/2013a 175 125
4/1/2013 – 1/25/2015b 175 135
Beginning 1/26/2015c 175 85
Sources: Ginnie Mae and Urban Institute. Note: A typical purchase loan has an LTV over 95 and a loan term longer than 15 years. Mortgage insurance premiums are listed in basis points. * For a short period in 2008 the FHA used a risk based FICO/LTV matrix for MI. a Applies to purchase loans less than or equal to $625,500. Those over that amount have an annual premium of 150 bps.
b Applies to purchase loans less than or equal to $625,500. Those over that amount have an annual premium of 155 bps.
c Applies to purchase loans less than or equal to $625,500. Those over that amount have an annual premium of 105 bps.
FHA premiums rose significantly in the years following the housing crash, with annual premiums rising 170% from 2008 to 2013 as FHA worked to shore up its finances. In a move announced by President Obama just after the new year, annual premiums will be cut substantially, by 50 bps, beginning January 26. We expect this reduction to significantly mitigate FHA’s problem of adverse selection, in which lower-FICO borrowers disproportionately gravitate to FHA financing over GSE with PMI. As shown in the bottom table, a borrower putting 3.5% down will now find FHA more economical regardless of their FICO score.
Assumptions Property Value $250,000 Loan Amount $241,250 LTV 96.5 Base Rate
Conforming 4.29% FHA 4.00%
Initial Monthly Payment Comparison: FHA vs. PMI
FICO 620 - 639 640 - 659 660 - 679 680 - 699 700 - 719 720 - 739 740 - 759 760 +
FHA MI Premiums
FHA UFMIP 1.75 1.75 1.75 1.75 1.75 1.75 1.75 1.75
FHA MIP* 0.85 0.85 0.85 0.85 0.85 0.85 0.85 0.85
PMI
GSE AMDC & LLPA 3.75 3.00 2.50 1.75 1.75 1.25 1.00 1.00
PMI Annual MIP 1.48 1.48 1.48 1.31 1.31 1.10 1.10 1.05
Monthly Payment
FHA $1,343 $1,343 $1,343 $1,343 $1,343 $1,343 $1,343 $1,343
PMI $1,593 $1,571 $1,556 $1,500 $1,500 $1,444 $1,436 $1,426
PMI Advantage ($250) ($228) ($213) ($157) ($157) ($101) ($93) ($83)
Sources: Genworth Mortgage Insurance, Ginnie Mae and Urban Institute. Note: Mortgage insurance premiums listed in percentage points. LLPA= Loan Level Price Adjustment, described in detail on page 20. Grey shade indicates FHA monthly payment is more favorable..
34
Publications FHFA’s Federal Home Loan Bank Members Proposal Overshoots the Mark Authors: Laurie Goodman, Jim Parrott and Karan Kaul Date: January 13, 2015 A Review and Critique of the 2014 actuarial assessment of FHA’s Mortgage Insurance Fund Author: Laurie Goodman Date: January 6, 2014 Servicing: An Underappreciated Constraint to Access to Credit Author: Laurie Goodman Date: December 16, 2014 A Better Measure of Mortgage Application Denial Rates Authors: Wei Li and Laurie Goodman Date: December 2, 2014 Measuring Mortgage Credit Availability Using Ex-Ante Probability of Default Authors: Wei Li and Laurie Goodman Date: November 18, 2014 Measuring Mortgage Credit Accessibility Authors: Wei Li, Laurie Goodman, Ellen Seidman, Jim Parrott, Jun Zhu, and Bing Bai Date: November 3, 2014 Comment Letter on the CFPB’s HMDA mortgage data proposal Authors: Ellen Seidman, Laurie Goodman, Wei Li Jim Parrott, Kathryn L.S. Pettit, Carlos Martin, and Peter Tatian Date: October 22, 2014 Assessing the Proposed Housing Goals Authors: Jim Parrott, Laurie Goodman, Wei Li Ellen Seidman, and Jun Zhu Date: October 22, 2014
Blog Posts Four impacts of the Federal Housing Administration’s premium cut Authors: Karan Kaul and Bing Bai Date: January 21, 2015 Obtaining a mortgage loan: How do we know if it’s too hard, too easy, or just about right? Authors: Maia Woluchem and Taz George Date: January 12, 2015 FHA: Time to stop overcharging borrowers for yesterday’s mistakes Authors: Laurie Goodman, Bing Bai snf Jun Zhu Date: January 6, 2014 The 2015 slash to VA loan limits will have little impact on veterans even in hardest-hit DC suburbs Authors: Laurie Goodman and Jun Zhu Date: December 29, 2014 Should you rent or buy? What to consider in housing decisions Author: Ellen Seidman Date: December 19, 2014 New measure shows mortgage denial rate is triple traditional estimates Authors: Wei Li and Laurie Goodman Date: December 16, 2014 The biggest obstacle to a mortgage market recover that nobody is talking about Authors: Laurie Goodman and Taz George Date: December 16, 2014 New credit availability measure shows product risk, not borrower risk, fueled the housing crisis Authors: Wei Li and Laurie Goodman Date: December 9, 2014
Upcoming Events
Mortgage Insurance: Premiums, Capital and Accessibility – January 22nd at 6:00 PM Please join us for this sunset seminar as we discuss the impact of the recent reduction in FHA premiums on the PMI market. Panelists include: Ed Golding, Senior Advisor, HUD; Laurie Goodman, director, Housing Finance Policy Center, Urban Institute; Rohit Gupta, President and CEO, Genworth US Mortgage Insurance; Mark Zandi, Chief Economist, Moody’s Analytics; and Moderator Faith Schwartz, Senior Vice President of Government Solutions, CoreLogic. For more information, contact Alison Rincon ([email protected])
PUBLICATIONS AND EVENTS RELATED HFPC WORK
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Copyright © January 2015. The Urban Institute. All rights reserved. Permission is granted for reproduction of this file, with attribution to the Urban Institute. The Urban Institute is a nonprofit, nonpartisan policy research and educational organization that examines the social, economic, and governance problems facing the nation. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders. The Urban Institute’s Housing Finance Policy Center (HFPC) was launched with generous support at the leadership level from the Citi Foundation and John D. and Catherine T. MacArthur Foundation. Additional support was provided by The Ford Foundation and The Open Society Foundations. Ongoing support for HFPC is also provided by the Housing Finance Council, a group of firms and individuals supporting high-quality independent research that informs evidence-based policy development. Funds raised through the Council provide flexible resources, allowing HFPC to anticipate and respond to emerging policy issues with timely analysis. This funding supports HFPC’s research, outreach and engagement, and general operating activities. Funders do not determine research findings or influence scholars’ conclusions. Scholars are independent and empowered to share their evidence-based views and recommendations shaped by research. The Urban Institute does not take positions on issues.