HOUSING FINANCE AT A GLANCE

HOUSING FINANCE POLICY CENTER

HOUSING FINANCE AT A GLANCE

A MONTHLY CHARTBOOK

March 2018

1

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 ataglance@.

To receive regular updates from the Housing Finance Policy Center, please visit here to sign up for our bi-weekly newsletter.

HOUSING FINANCE POLICY CENTER STAFF

Laurie Goodman Center Co-Director

Alanna McCargo Center Co-Director

Edward Golding Senior Fellow

Jim Parrott Senior Fellow

Sheryl Pardo Associate Director of Communications

Todd Hill Policy & Research Program Manager

Jun Zhu Senior Research Associate

Bing Bai Research Associate

Karan Kaul Research Associate

Jung Choi Research Associate

Bhargavi Ganesh Research Analyst

Sarah Strochak Research Assistant

Andrea Reyes Center Administrator

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

Non-bank Origination Share

Nonbank Origination Share: All Loans

12

Nonbank Origination Share: Purchase Loans

12

Nonbank Origination Share: Refi Loans

12

Non-bank Credit Box

Agency FICO: Bank vs. Nonbank

13

GSE FICO: Bank vs. Nonbank

13

Ginnie Mae FICO: Bank vs. Nonbank

13

GSE LTV: Bank vs. Nonbank

14

Ginnie Mae LTV: Bank vs. Nonbank

14

GSE DTI: Bank vs. Nonbank

14

Ginnie Mae DTI: Bank vs. Nonbank

14

State of the Market

Mortgage Origination Projections

Total Originations and Refinance Shares

15

Housing Starts and Home Sales

15

Credit Availability and Originator Profitability

Housing Credit Availability Index (HCAI)

16

Originator Profitability and Unmeasured Costs (OPUC)

16

Credit Availability for Purchase Loans

Borrower FICO Score at Origination Month

17

Combined LTV at Origination Month

17

Origination FICO and LTV by MSA

18

CONTENTS

Housing Affordability National Housing Affordability Over Time Affordability Adjusted for MSA-Level DTI

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

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

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

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

GSEs under Conservatorship

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

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

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

Agency Gross and Net Issuance Agency Gross Issuance Agency Net Issuance

Agency Gross Issuance & Fed Purchases Monthly Gross Issuance Fed Absorption of Agency Gross Issuance

Agency Issuance

Mortgage Insurance Activity MI Activity & Market Share FHA MI Premiums for Typical Purchase Loan Initial Monthly Payment Comparison: FHA vs. PMI

Publications and Events

Related HFPC Work

19 19

20 20

21 21

22 22

23

24 24

25 25 26-27

28 29

30 30

31 31

32 33 33

34

INTRODUCTION

How have rising rates impacted the mortgage market so far?

As mortgage rates have increased, there has been no shortage of articles explaining the effect of rising rates on the mortgage market. Mortgage rates began their present sustained increase immediately after the last presidential election in November 2016, 20 months ago. Enough data points have become available during this period that we can now measure the effects of rising rates. Below we outline a few.

Refinances: The most immediate impact of rising rates is on refinance volumes, which fall as rates rise. For mortgages backed by Fannie Mae and Freddie Mac, the refinance share of total originations declined from 63 percent in Nov 2016 to 46 percent today (page 11). For FHA, VA and USDA-insured mortgages, the refinance share dropped from 44 percent to 35 percent. In terms of volume, Fannie Mae and Freddie Mac backed refinance volume totaled $390 billion in 2017, down from $550 billion in 2016. For Ginnie Mae, refi volume dropped from $197 billion in 2016 to $136 billion in 2017. Looking ahead, most estimates for 2018 point to a continued reduction in the refi share and origination volumes (page 15).

Originator profitability: Of course, less demand for mortgages isn't good for originator profitability because lenders need to compete harder to attract borrowers. They do this often by reducing profit margins as rates rise (conversely, when rates are falling and everyone is rushing to refinance, lenders tend to respond by increasing their profit margins). Indeed, since Nov 2016, originator profitability has declined from $2.6 per $100 of loans originated to $1.93 today (page 16). Post crisis originator profitability reached as high as $5 per $100 loan in late 2012, when rates were at their lowest point.

Cash-out share: Another consequence of falling refinance volumes is the rising share of cash-out refinances. The share of cash-out refinances varies partly because borrowers' motivations change with interest rates. When rates are low, the primary goal of refinancing is to reduce the monthly payment. Cash-out share tends to be low during such periods. But when rates are high, borrowers have no incentive to refinance for rate reasons. Those who still refinance tend to be driven more by their desire to

cash-out (although this doesn't mean that the volume is also high). As such, cash-out share of refinances increased to 63 percent in Q4 2017 according to Freddie Mac Quarterly Refinance Statistics. The last time cash-out share was this high was in 2008.

Industry consolidation: A longer-term impact of rising rates is industry consolidation: not every lender can afford to cut profitability. Larger, diversified originators are more able to accept lower margins because they can make up for it through other lines of business or simply accept lower profitability for some time. Smaller lenders may not have such flexibility and may find it necessary to merge with another entity. Industry consolidation due to higher rates is not easy to quantify as firms can merge or get acquired for various reasons. At the same time, one can't ignore New Residential Investment's recent acquisition of Shellpoint Partners and Ocwen's purchase of PHH.

INSIDE THIS ISSUE ? The total value of the US housing market

continued to rise in Q4 2017, driven by a $395 billion increase in household equity (page 6). ? First lien originations in 2017 was down 14 percent year-over-year (page 8). ? New mortgage affordability measures indicate that national home prices remain affordable by historical standards, but the affordability levels vary by metro area (page 19). ? The share of loans in negative equity continued the decline to 4.86 percent in Q4 2017 (Page 22). ? Both modifications and liquidations continued to slow down in 2017 (page 23). ? Serious delinquencies for single-family GSE loans, and multi-family Fannie Mae loans remained elevated in January 2018, after the uptick in previous month, mostly due to the recent hurricanes (pages 28 and 29).

OVERVIEW

MARKET SIZE OVERVIEW

Since 2012, the Federal Reserve's Flow of Funds report has consistently indicated an increasing total value of the housing market, driven by growing household equity and 2017 Q4 was no different. Total debt and mortgages increased slightly to $10.6 trillion, and household equity reached a new high of $15.2 trillion, bringing the total value of the housing market to $25.8 trillion, surpassing the pre-crisis peak of $23.9 trillion in 2006. Agency MBS make up 60.0 percent of the total mortgage market, private-label securities make up 4.5 percent, and unsecuritized first liens at the GSEs, commercial banks, savings institutions, and credit unions make up 30.1 percent. Second liens comprise the remaining 5.4 percent of the total.

Value of the US Housing Market

($ trillions) 30

Debt, household mortgages

25

Household equity

Total value

$25.8

20

15

$15.2

10

$10.6

5

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 22001177

Sources: Federal Reserve Flow of Funds and Urban Institute. Last updated March 2018.

Size of the US Residential Mortgage Market

($ trillions) 7 6

Agency MBS

Unsecuritized first liens

Private Label Securities

Second Liens $6.38

5

Debt,

household

4

mortgages,

$9,833

3

$3.20

2

1

$0.57

$0.47 0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Sources: Federal Reserve Flow of Funds, Inside Mortgage Finance, Fannie Mae, Freddie Mac, eMBS and Urban Institute. Last updated March 2018. Note: Unsecuritized first liens includes loans held by commercial banks, GSEs, savings institutions, and credit unions.

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OVERVIEW

MARKET SIZE OVERVIEW

As of January 2018, debt in the private-label securitization market totaled $500 billion and was split among prime (18.4 percent), Alt-A (37.7 percent), and subprime (44.0 percent) loans. In February 2018, outstanding securities in the agency market totaled $6.41 trillion and were 43.8 percent Fannie Mae, 27.3 percent Freddie Mac, and 28.9 percent Ginnie Mae. Ginnie Mae has had more outstanding securities than Freddie Mac since May 2016.

Private-Label Securities by Product Type

($ trillions) 1

Alt-A

Subprime

Prime

0.8

0.6

0.4

0.22

0.2

0.19

0.09

0

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Sources: CoreLogic and Urban Institute.

January 2018

Agency Mortgage-Backed Securities

($ trillions) 7 6

Fannie Mae

Freddie Mac

Ginnie Mae

Total

6.4

5

4

3

2.8

2

1.9

1.8 1

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Sources: eMBS and Urban Institute.

February 2018

7

OVERVIEW

ORIGINATION VOLUME AND COMPOSITION

First Lien Origination Volume

After a record high origination year in 2016 ($2.1 trillion), the first lien originations totaled $1.8 trillion in 2017, down 14 percent from last year, mostly due to elevated interest rates. The portfolio originations share was 29 percent, the GSE share was around 46 percent, and the FHA/VA share was around 24 percent, all consistent with 2016 shares. Origination of private-label securities was under 1 percent in both years.

($ trillions) $4.0

GSE securitization

FHA/VA securitization

PLS securitization

Portfolio

$3.5

$3.0

$2.5

$2.0

$1.5

$0.524 $0.015

$1.0

$0.441

$0.5

$0.830

$0.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Sources: Inside Mortgage Finance and Urban Institute. Last updated March 2018.

(Share, percent)

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2001

2003

2005

2007

2009

2011

Sources: Inside Mortgage Finance and Urban Institute. Last updated March 2018.

2013

2015

28.9% 0.83% 24.3%

45.8%

2017

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