October 2016

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A MONTHLY CHARTBOOK

HOUSING FINANCE POLICY CENTER

HOUSING FINANCE AT A GLANCE

ABOUT THE CHARTBOOK

The Housing Finance Policy Centers (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 governments 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 ataglance@urban.org.

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HOUSING FINANCE POLICY CENTER STAFF

Laurie Goodman Center Co-Director Alanna McCargo Center Co-Director Ellen Seidman Senior Fellow Jim Parrott Senior Fellow Sheryl Pardo Associate Director of Communications Jun Zhu Senior Research Associate Bing Bai Research Associate I Karan Kaul Research Associate I Maia Woluchem Research Associate II Bhargavi Ganesh Research Assistant Alison Rincon Center Administrator

mailto:ataglance@urban.orghttp://www.urban.org/newsletter-signup-housing-finance-policy-update

INTRODUCTION The VAs Growing Role in the Mortgage Market

One of the main drivers of the growth of Ginnie Mae MBS issuances in recent years (page 30) is the increasing volume and share of mortgages backed by the Department of Veteran Affairs (page 32). In 2009, VA-backed originations amounted to approximately $75 billion out of a total $450 billion in government originations. The vast majority of the remaining $375 billion were FHA-insured mortgages ($360 billion) with USDA comprising the rest. Thus VAs share of the government channel was only 17 percent in 2009 compared to 80 percent for FHA (see table below). In other words, FHA was by far the dominant provider of credit within the government channel. By 2015 however, VA originations had more than doubled to over $155 billion, while FHA originations had declined by 27 percent to just over $260 billion. Currently VAs share stands at 39 percent while FHA is at 57 percent. This trend has a couple of important implications for the mortgage market.

First, VA mortgages tend to refinance at much faster rates than FHA mortgages causing Ginnie Mae MBS to prepay sooner. VA mortgages refinance faster because borrowers have better credit characteristics higher FICO scores and lower DTI ratios and have access to a very efficient VA refinance program that requires no appraisal, no underwriting or out of pocket expenses. VA borrowers also tend to have higher loan balances than FHA borrowers and thus stand to save more by refinancing, even if rates fall only slightly. Not surprisingly, for most of 2016, the share of total VA originations that was refinances ranged from roughly

50 to 60 percent, while the corresponding share for FHA mortgages remained in the 30 to 35 percent range. Faster prepayments ultimately cause Ginnie Mae securities to appreciate less as rates decline, leaving MBS investors with a lower return than they would have otherwise received.

Second, and more importantly, growing role of VA underscores the need for stricter regulatory requirements for non-bank lenders. Unlike FHA, which backs its loans 100 percent, VA only covers the first 25 percent of loan amount. The lender remains on the hook for the remaining 75 percent with an explicit backstop from the VA. And if the lender is unable to fulfill this financial obligation, the VA, and hence the taxpayer, picks up the tab. This risk has increased in recent years due to the growing role of nonbank lenders in mortgage origination/servicing and the relatively thin regulation they operate under. And as the VA plays an even bigger role in the mortgage market in the coming years, its risk exposure to nonbank lenders will only increase further.

INSIDE THIS ISSUE

Non-agency prime securitizations totaled $4.07 billion in Q3 2016, up $1.51 billion YOY (page 10)

Refinance shares jumped up with the recent drop in mortgage rates (page 11)

Housing Credit Availability Index (HCAI) continued to edge down in Q2 2016 (page 13)

First-time homebuyer share of both GSE and FHA loans continued to decline in July (page 17)

Strong Ginnie Mae issuance driven by FHA insurance premium cut and increased VA activities (pages 30 and 31)

Year FHA VA USDA

2009 80% 17% 4%

2010 78% 18% 4%

2011 69% 26% 5%

2012 63% 32% 5%

2013 61% 34% 6%

2014 55% 38% 7%

2015 60% 36% 4%

2016 YTD 57% 39% 4%

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

Credit Availability and Originator Profitability Housing Credit Availability Index (HCAI) 13 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

First-Time Homebuyers First-Time Homebuyer Share 17 Comparison of First-time and Repeat Homebuyers, GSE and FHA Originations 17

Home Price Indices National Year-Over-Year HPI Growth 18 Changes in CoreLogic HPI for Top MSAs 18

CONTENTS

Negative Equity & Serious Delinquency Negative Equity Share 19 Loans in Serious Delinquency 19

GSEs under Conservatorship

GSE Portfolio Wind-Down Fannie Mae Mortgage-Related Investment Portfolio 20 Freddie Mac Mortgage-Related Investment Portfolio 20

Effective Guarantee Fees & GSE Risk-Sharing Transactions Effective Guarantee Fees 21 Fannie Mae Upfront Loan-Level Price Adjustment 21 GSE Risk-Sharing Transactions and Spreads 22-23

Serious Delinquency Rates Serious Delinquency Rates Fannie Mae & Freddie Mac 24 Serious Delinquency Rates Single-Family Loans & Multifamily GSE Loans 25

Refinance Activity Total HARP Refinance Volume 26

GSE Loans: Potential Refinances Loans Meeting HARP Pay History Requirements 27

Modification Activity

HAMP Activity New & Cumulative HAMP Modifications 28

Modifications and Liquidations Loan Modifications and Liquidations (By Year & Cumulative) 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

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MARKET SIZE OVERVIEW The Federal Reserve's Flow of Funds report has consistently indicated an increasing total value of the housing market driven by growing household equity since 2012, and the trend continued according to the latest data, covering Q2 2016. Total debt and mortgages increased to $10.1 trillion, and household equity increased to $13.40 trillion, bringing the total value of the housing market up slightly to $23.5 trillion. Agency MBS make up 58.7 percent of the total mortgage market, private-label securities make up 5.6 percent, and unsecuritized first liens at the GSEs, commercial banks, savings institutions, and credit unions make up 29.6 percent. Second liens comprise the remaining 6.2 percent of the total.

OVERVIEW

Debt, household mortgages,

$9,833

5.9

3.0

0.6

0

1

2

3

4

5

6

7

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016Q2

($ 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.

10.1

13.4

23.5

0

5

10

15

20

25

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2016 Q2

($ trillions) Debt, household mortgages Household equity Total value

Value of the US Housing Market

Sources: Federal Reserve Flow of Funds and Urban Institute.

2016 Q2

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MARKET SIZE OVERVIEW OVERVIEW

As of August 2016, debt in the private-label securitization market totaled $577 billion and was split among prime (18.7 percent), Alt-A (41.5 percent), and subprime (39.7 percent) loans. In August 2016, outstanding securities in the agency market totaled $5.99 trillion and were 44