HOUSING FINANCE POLICY CENTER HOUSING FINANCE AT A GLANCE A CHARTBOOK January 2015 ABOUT THE CHARTBOOK HOUSING FINANCE POLICY CENTER STAFF 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. Laurie Goodman Center Director 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. 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 Size of the US Residential Mortgage Market Private Label Securities Agency Mortgage-Backed Securities 6 6 7 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 Non-Agency MBS Issuance Non-Agency Securitization 10 10 10 Agency Activity: Volumes and Purchase/Refi Composition Agency Gross Issuance Percent Refi at Issuance 11 11 State of the Market Mortgage Origination Projections Total Originations and Refinance Shares Housing Starts and Home Sales 12 12 Originator Profitability Originator Profitability and Unmeasured Costs (OPUC) 13 Credit Availability for Purchase Loans Borrower FICO Score at Origination Month Combined LTV at Origination Month Origination FICO and LTV by MSA 14 14 15 Housing Affordability National Housing Affordability Over Time Affordability Adjusted for MSA-Level DTI 16 16 Home Price Indices National Year-Over-Year HPI Growth Changes in CoreLogic HPI for Top MSAs 17 17 Negative Equity & Serious Delinquency Negative Equity Share Loans in Serious Delinquency 18 18 GSEs under Conservatorship GSE Portfolio Wind-Down Fannie Mae Mortgage-Related Investment Portfolio Freddie Mac Mortgage-Related Investment Portfolio 19 19 CONTENTS Effective Guarantee Fees & GSE Risk-Sharing Transactions Effective Guarantee Fees Fannie Mae Upfront Loan-Level Price Adjustment GSE Risk-Sharing Transactions 20 20 21 Serious Delinquency Rates Serious Delinquency Rates – Fannie Mae & Freddie Mac Serious Delinquency Rates – Single-Family Loans & Multifamily GSE Loans 22 23 Refinance Activity Total HARP Refinance Volume HARP Refinances 24 24 GSE Loans: Potential Refinances Loans Meeting HARP Pay History Requirements 25 Modification Activity HAMP Activity New HAMP Modifications Cumulative HAMP Modifications 26 26 Modification by Type of Action and Bearer of Risk Changes in Loan Terms for Modifications Type of Modification Action by Investor and Product Type 27 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 Agency Net Issuance 30 30 Agency Gross Issuance & Fed Purchases Monthly Gross Issuance Fed Absorption of Agency Gross Issuance 31 31 Mortgage Insurance Activity MI Activity & Market Share FHA MI Premiums for Typical Purchase Loan Initial Monthly Payment Comparison: FHA vs. PMI 32 33 33 Related HFPC Work Publications and Events 34 OVERVIEW 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 $15 billion, though that was still the largest quarterly increase in the past two years. Agency MBS make up 56.8 percent of the total mortgage market, private-label securities make up 7.3 percent, and unsecuritized first liens at the GSEs, commercial banks, savings institutions, and credit unions make up 29.0 percent. Second liens comprise the remaining 6.9 percent. Value of the US Housing Market Debt, household mortgages ($ trillions) Household equity Total value 25 21.4 20 15 11.5 10 9.9 5 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Q3 Sources: Federal Reserve Flow of Funds and Urban Institute. Size of the US Residential Mortgage Market Agency MBS Unsecuritized first liens Private Label Securities Second Liens ($ trillions) 6 5.6 5 4 Debt, household mortgages, $9,833 3 2.9 2 1 0 2000 0.7 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 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. 2013 2014 Q3 6 OVERVIEW MARKET SIZE 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 $5.64 trillion and were 46.4 percent Fannie Mae, 27.3 percent Freddie Mac, and 26.3 percent Ginnie Mae. Private-Label Securities by Product Type Alt-A ($ trillions) Subprime Prime 1 0.8 0.6 0.4 0.31 0.26 0.2 0 1999 0.14 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 November 2014 Sources: CoreLogic and Urban Institute. Agency Mortgage-Backed Securities Fannie Mae Freddie Mac Ginnie Mae Total ($ trillions) 6 5.6 5 4 3 2.6 2 1.5 1 0 2000 2001 2002 2003 Sources: eMBS and Urban Institute. 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 December 2014 7 OVERVIEW ORIGINATION VOLUME AND COMPOSITION First Lien Origination Volume and Share 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. Volume, $ trillions GSE securitization FHA/VA securitization PLS securitization Bank portfolio $4.0 $3.5 $3.0 $2.5 $2.0 $1.5 $0.23 $1.0 $0.01 $0.18 $0.5 $0.43 $0.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Q1-3 Share, percent 100% 90% 26.7% 80% 0.7% 70% 21.5% 60% 50% 40% 30% 51.1% 20% 10% 0% 2002 2003 2004 2005 2006 Sources: Inside Mortgage Finance and Urban Institute. 2007 2008 2009 2010 2011 2012 2013 2014 Q1-3 8 OVERVIEW MORTGAGE ORIGINATION MORTGAGE ORIGINATION PRODUCT PRODUCT TYPE 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 30year FRMs in October 2014 stood at 86 percent, 15-year FRMs at 5.9 percent, and ARMs at 6.5 percent. All Originations Fixed-rate 30-year mortgage Fixed-rate 15-year mortgage Adjustable-rate mortgage Other 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 October 2014 Sources: CoreLogic Prime Servicing and Urban Institute. Purchase Loans Only Fixed-rate 30-year mortgage Fixed-rate 15-year mortgage Adjustable-rate mortgage Other 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2000 2001 2002 2003 2004 2005 Sources: CoreLogic Prime Servicing and Urban Institute. 2006 2007 2008 2009 2010 2011 2012 2013 2014 October 2014 9 OVERVIEW SECURITIZATION VOLUME AND COMPOSITION 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, $18, was scratch and dent securitizations. 100% 97.5% Agency share 90% 80% 70% 60% 50% 40% Non-Agency share 30% 20% 10% 2.5 % 2 Sources: Inside Mortgage Finance and Urban Institute. YTD 20142014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 0% Non-Agency MBS Issuance ($ billions) Non-Agency Securitization ($ billions) Re-REMICs and other $1,200 $6 Scratch and dent Alt A $1,000 $5 Subprime $800 $4 Prime $400 $2,056 $17,981 $1,597 $200 $10,002 1.416 $3 $600 $2 $674 $1 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 Sources: Inside Mortgage Finance and Urban Institute. Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 $0 $-0 Sources: Inside Mortgage Finance and Urban Institute. Note: Monthly figures equal total non-agency MBS issuance minus Re-REMIC issuance. 10 OVERVIEW AGENCY ACTIVITY: VOLUMES AND PURCHASE/ REFI COMPOSITION Agency issuance continues declining, totaling $947.2 billion in 2014, much less than $1.57 trillion in 2013. In December 2014, refinances edged up to 55 and 53 percent of the GSEs’ business, as the average mortgage rate dropped under 4 percent. The Ginnie Mae market has always been more purchase-driven, with refinance volume of 33 percent. Note that the latest uptick does not include the effect of the drop in rates that occurred in late 2014 and early 2015 or the 50 basis point decrease in the FHA premium. Agency Gross Issuance Fannie Mae Freddie Mac Ginnie Mae ($ trillions) $2.5 $2.0 $1.5 $1.0 $0.30 $0.26 $0.5 $0.39 $0.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Sources: eMBS and Urban Institute. 2014 Ann. Percent Refi at Issuance Freddie Mac Percent refi Fannie Mae Ginnie Mae Mortgage rate Mortgage rate 90% 9.0% 80% 8.0% 70% 7.0% 60% 6.0% 50% 5.0% 40% 4.0% 30% 3.0% 20% 2.0% 10% 1.0% 0% 0.0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 December 2014 Sources: eMBS and Urban Institute. Note: Based on at-issuance balance. 11 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 $100 billion. And although lower projected interest rates have lifted the forecasted refinancing share slightly above last month’s estimates, both Freddie and Fannie still expect a decline in in 2015, in Freddie's case to 23 percent, while Fannie predicts a more modest drop to 37 percent. All three sources expect higher housing starts and home sales in the coming year. Total Originations and Refinance Shares Period 2014 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1 2015 Q2 2015 Q3 2015 Q4 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 Originations ($ billions) Total, FNMA Total, FHLMC Total, MBA estimate estimate estimate 240 250 247 301 320 297 294 350 300 289 280 278 257 280 271 303 330 328 298 290 318 276 200 272 1496 1492 1436 2154 2122 2044 1866 1925 1845 1124 1200 1122 1133 1100 1184 FNMA estimate 49 38 36 40 47 35 33 35 66 72 60 40 37 Refi Share (%) FHLMC estimate 44 38 42 38 35 25 20 20 64 70 59 43 23 MBA estimate 50 40 38 46 46 38 34 36 65 71 60 43 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 and Homes Sales 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 FY 2012 FY 2013 FY 2014 FY 2015 609 781 925 996 1170 610 780 920 1000 1200 612 783 930 995 1110 4566 5028 5519 5369 5661 4570 5030 5520 5370 5600 4501 5030 5505 5365 5691 4200 4661 5073 4923 5188 301 369 432 442 503 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. 12 STATE OF THE MARKET ORIGINATOR PROFITABILITY 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. Originator Profitability and Unmeasured Costs Dollars per $100 loan 6 5 4 3 2.17 2 1 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 December 2014 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. 13 STATE OF THE MARKET CREDIT CREDIT AVAILABILITY AVAILABILITY FOR FOR PURCHASE LOANS 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. Borrower FICO Score at Origination FICO Score 90th percentile Mean Median 10th percentile 850 800 801 750 750 740 700 663 650 600 550 500 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Sources: CoreLogic Servicing and Urban Institute. Note: Purchase-only loans. 2014 October 2014 Combined LTV at Origination LTV 90th percentile Mean Median 10th percentile 110 100 100 90 89 85 80 70 66 60 50 40 30 2001 2002 2003 2004 2005 Sources: CoreLogic Servicing and Urban Institute. Note: Purchase-only loans. 2006 2007 2008 2009 2010 2011 2012 2013 2014 October 2014 14 San Francisco-Redwood City-South San Francisco CA San Jose-Sunnyvale-Santa Clara CA Oakland-Hayward-Berkeley CA Los Angeles-Long Beach-Glendale CA New York-Jersey City-White Plains NY-NJ San Diego-Carlsbad CA Portland-Vancouver-Hillsboro OR-WA Seattle-Bellevue-Everett WA Denver-Aurora-Lakewood CO Minneapolis-St. Paul-Bloomington MN-WI Nassau County-Suffolk County NY Newark NJ-PA Chicago-Naperville-Arlington Heights IL Washington-Arlington-Alexandria DC-VA-MD-WV Philadelphia PA Baltimore-Columbia-Towson MD Sacramento--Roseville--Arden-Arcade CA Boston MA Charlotte-Concord-Gastonia NC-SC St. Louis MO-IL Dallas-Plano-Irving TX Pittsburgh PA Houston-The Woodlands-Sugar Land TX Kansas City MO-KS Columbus OH Atlanta-Sandy Springs-Roswell GA Orlando-Kissimmee-Sanford FL Tampa-St. Petersburg-Clearwater FL Fort Worth-Arlington TX Riverside-San Bernardino-Ontario CA Phoenix-Mesa-Scottsdale AZ Las Vegas-Henderson-Paradise NV San Antonio-New Braunfels TX Miami-Miami Beach-Kendall FL Cincinnati OH-KY-IN Detroit-Dearborn-Livonia MI Cleveland-Elyria OH STATE OF THE MARKET CREDIT AVAILABILITY AVAILABILITY FOR FOR CREDIT PURCHASE LOANS 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. Origination FICO and LTV by MSA Origination FICO Mean origination FICO score Mean origination LTV Origination LTV 780 100 770 95 760 90 750 85 740 80 730 75 720 70 710 65 700 60 Sources: CoreLogic Servicing as of October 2014 and Urban Institute. Note: Purchase-only loans. 15 STATE OF THE MARKET HOUSING AFFORDABILITY National Housing Affordability Over Time $300 $280 $260 $240 $220 $200 $180 $160 $140 $120 $282,095 Credit Bubble $238,861 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 $200,000 2001 Sources: CoreLogic, US Census, Freddie Mac and Urban Institute. Note: The maximum affordable price is the house price that a family can afford putting 20 percent down, with a monthly payment of 28 percent of median family income, at the Freddie Mac prevailing rate for 30-year fixedrate mortgage, and property tax and insurance at 1.75 percent of housing value. Max affordable price Housing Prices ($ thousands) 2000 Home 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. Median sales price Max affordable price at 6.0% rate October 2014 Affordability Adjusted for MSA-Level DTI Ratio 1.4 1.3 1.2 1.1 1 0.9 0.8 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. 16 Cleveland-Elyria OH Las Vegas-Henderson-Paradise NV Pittsburgh PA Cincinnati OH-KY-IN Chicago-Naperville-Arlington Heights IL Columbus OH St. Louis MO-IL Tampa-St. Petersburg-Clearwater FL Newark NJ-PA Boston MA Kansas City MO-KS Denver-Aurora-Lakewood CO Charlotte-Concord-Gastonia NC-SC Orlando-Kissimmee-Sanford FL Atlanta-Sandy Springs-Roswell GA Minneapolis-St. Paul-Bloomington MN-WI Houston-The Woodlands-Sugar Land TX Nassau County-Suffolk County NY Sacramento--Roseville--Arden-Arcade CA San Antonio-New Braunfels TX Detroit-Dearborn-Livonia MI Philadelphia PA Dallas-Plano-Irving TX Fort Worth-Arlington TX Baltimore-Columbia-Towson MD Phoenix-Mesa-Scottsdale AZ Riverside-San Bernardino-Ontario CA San Diego-Carlsbad CA Oakland-Hayward-Berkeley CA Seattle-Bellevue-Everett WA Miami-Miami Beach-Kendall FL Portland-Vancouver-Hillsboro OR-WA New York-Jersey City-White Plains NY-NJ Washington-Arlington-Alexandria DC-VA-MD-WV San Jose-Sunnyvale-Santa Clara CA San Francisco-Redwood City-South San Francisco CA Los Angeles-Long Beach-Glendale CA 0.7 STATE OF THE MARKET HOME PRICE INDICES National Year-Over-Year HPI Growth 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. Year-over-year growth rate 20% 15% 10% CoreLogic HPI 6.0% 5.5% 5% 0% Zillow HVI -5% -10% -15% -20% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Sources: CoreLogic, Zillow, and Urban Institute. 2013 2014 November2014 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. HPI changes (%) MSA United States New York-Jersey City-White Plains NY-NJ Los Angeles-Long Beach-Glendale CA Chicago-Naperville-Arlington Heights IL Atlanta-Sandy Springs-Roswell GA Washington-Arlington-Alexandria DC-VA-MD-WV Houston-The Woodlands-Sugar Land TX Phoenix-Mesa-Scottsdale AZ Riverside-San Bernardino-Ontario CA Dallas-Plano-Irving TX Minneapolis-St. Paul-Bloomington MN-WI Seattle-Bellevue-Everett WA Denver-Aurora-Lakewood CO Baltimore-Columbia-Towson MD San Diego-Carlsbad CA Anaheim-Santa Ana-Irvine CA 2000 to peak Peak to trough Trough to current % Rise needed to achieve peak 98.9 115.6 181.5 65.2 40.8 159.7 44.3 126.4 194.6 38.3 74.0 94.2 36.3 128.5 148.7 162.5 -32.4 -20.0 -39.1 -36.4 -33.6 -33.3 -12.6 -52.7 -53.3 -13.6 -30.5 -31.8 -14.4 -25.5 -38.2 -36.8 28.9 17.5 43.6 21.9 38.4 27.4 31.9 48.8 48.4 27.2 25.2 35.6 35.2 7.8 37.3 37.8 14.8 6.4 14.3 29.1 8.8 17.7 -13.3 42.2 44.2 -9.0 14.9 8.1 -13.6 24.6 17.8 14.8 Sources: CoreLogic HPIs as of November 2014 and Urban Institute. Note: This table includes the largest 15 Metropolitan areas by mortgage count. 17 STATE OF THE MARKET NEGATIVE EQUITY & SERIOUS DELINQUENCY Negative Equity Share 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. 35% 30% 25% Near or in negative equity 20% 15% 10% 12.9% 10.3% Negative equity 5% 3Q14 2Q14 1Q14 4Q13 3Q13 2Q13 1Q13 4Q12 3Q12 2Q12 1Q12 4Q11 3Q11 2Q11 1Q11 4Q10 3Q10 2Q10 1Q10 4Q09 3Q09 0% Sources: CoreLogic and Urban Institute. Loans in Serious Delinquency/Foreclosure 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. 10% 9% Percent of loans 90 days delinquent or in foreclosure Percent of loans in foreclosure 8% 7% 6% 4.7% 5% 4% Percent of loans 90 days delinquent 3% 2.4% 2% 2.3% 1% 3Q00 1Q01 3Q01 1Q02 3Q02 1Q03 3Q03 1Q04 3Q04 1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 0% Sources: Mortgage Bankers Association and Urban Institute. 18 GSES UNDER CONSERVATORSHIP GSE PORTFOLIO WIND-DOWN 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. Fannie Mae Mortgage-Related Investment Portfolio Composition Fannie MBS in portfolio Non-FNMA agency MBS Non-agency MBS ($ billions) Mortgage loans Current size: $424.0 billion 2014 cap: $469.625 billion Shrinkage year-over-year: 14.5% Shrinkage in less-liquid assets yearover-year: 10.1% 900 800 700 600 500 400 300 200 100 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 Sources: Fannie Mae and Urban Institute. 800 700 600 500 400 300 200 100 0 2012 2013 2014 November 2014 November 2014 Freddie Mac Mortgage-Related Investment Portfolio Composition FHLMC MBS in portfolio Non-FHLMC agency MBS Non-agency MBS Mortgage loans ($ billions) Current size: $402.0 billion 2014 cap: $469.625 billion Shrinkage year-over-year: 13.9% Shrinkage in less-liquid assets yearover-year: 17.8% 900 800 700 600 500 400 300 200 100 0 2006 2007 2008 2009 2010 Sources: Freddie Mac and Urban Institute. 2011 2012 2013 2014 November 2014 700 600 500 400 300 200 100 0 2012 2013 2014 November 2014 19 GSES UNDER CONSERVATORSHIP EFFECTIVE GUARANTEE FEES AND GSE RISK-SHARING TRANSACTIONS Effective Guarantee Fees 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. 70 63.5 60 Fannie Mae single-family effective gfee rate 50 Fannie Mae single-family average charged g-fee on new acquisitions Freddie Mac management and g-fee rate 40 41.2 30 32.4 20 10 Sources: Fannie Mae, Freddie Mae and Urban Institute. Note: Freddie only reports the effective g-fee on the entire book of business. 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 0 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. 20 GSES UNDER CONSERVATORSHIP GSE RISK-SHARING TRANSACTIONS 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 $248,990.01 Percent of Fannie Mae’s Total Book of Business 9.5% Details of Fannie Mae’s latest capital markets transaction, CAS 2014 – C04 Class 1A-H Amount ($ millions) Tranche Thickness (%) CE (%) Rating Coupon (1mL+) $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 $107.50 0.3 0 NR -- 1B-H 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 Reference Pool Size $117.20 $53,872.70 0.65 100 0 -- NR -- --- 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. 21 SERIOUS DELINQUENCY GSES UNDER CONSERVATORSHIP SERIOUS RATES RATES ATDELINQUENCY THE GSEs Serious delinquency rates of GSE loans continue to decline as the legacy portfolio is resolved and the pristine, post2009 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. Serious Delinquency Rates–Fannie Mae Single-family: Non-credit enhanced Single-family: Credit enhanced Single-family: Total Percentage of total loans 16% 14% 12% 10% 8% 6% 4% 3.56% 2% 1.91% 1.64% 0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 November 2014 Sources: Fannie Mae and Urban Institute. Serious Delinquency Rates–Freddie Mac Single-family: Non-credit enhanced Single-family: Credit enhanced Single-family: Total PMI Credit Enhanced* Percentage of total loans 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 2006 3.89% 2.69% 1.91% 1.78% 2007 2008 2009 2010 2011 2012 2013 2014 November 2014 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. 22 GSES UNDER CONSERVATORSHIP SERIOUS DELINQUENCY RATES Serious delinquencies for FHA and GSE single-family loans continue to decline, but remain high relative to 20052007. 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. Serious Delinquency Rates–Single-Family Loans FHA Fannie Mae Freddie Mac 10% 9% 8% 7% 6% 6.18% 5% 4% 3% 1.96% 2% 1% 3Q14 1Q14 3Q13 1Q13 3Q12 1Q12 3Q11 1Q11 3Q10 1Q10 3Q09 1Q09 3Q08 1Q08 3Q07 1Q07 3Q06 1Q06 3Q05 1Q05 0% 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. Serious Delinquency Rates–Multifamily GSE Loans Fannie Mae Freddie Mac Percentage of total loans 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% 2005 0.05% 0.03% 2006 2007 2008 2009 2010 2011 2012 2013 2014 November 2014 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. 23 GSES UNDER CONSERVATORSHIP REFINANCE ACTIVITY 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-themoney), 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. Total HARP Refinance Volume Fannie Mae (thousands) Freddie Mac Total 160 140 120 100 80 60 40 14 8 5 20 0 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 October 2014 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. 24 GSES UNDER CONSERVATORSHIP GSE LOANS: POTENTIAL REFINANCES To qualify for HARP, a loan must be originated before the June 2009 cutoff date, have a marked-to-market loan-tovalue (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. Total loan count 26,904,530 Loans that do not meet pay history requirement Loans that meet pay history requirement: 957,791 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 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 Post-June 2009 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. 25 MODIFICATION ACTIVITY HAMP ACTIVITY 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. New HAMP Modifications New Trial Mods Started New Permanent Mods Started New Active Permanent Mods Started Number of mods (thousands) 450 400 350 300 250 200 150 100 33 50 30 0 3.2 2009 2010 2011 2012 2013 2014 2014 Q3 Sources: U.S. Treasury Making Home Affordable and Urban Institute. Cumulative HAMP Modifications All Trials Mods Started All Permanent mods started Active Permanent Mods Number of mods (millions) 2.5 2.2 2 1.5 1.4 1 0.96 0.5 0 2009 Q1 2009 Q3 2010 Q1 2010 Q3 2011 Q1 2011 Q3 Sources: U.S. Treasury Making Home Affordable and Urban Institute. 2012 Q1 2012 Q3 2013 Q1 2013 Q3 2014 Q1 2014 Q3 26 MODIFICATION ACTIVITY MODIFICATION BY TYPE OF ACTION AND BEARER OF RISK 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. Changes in Loan Terms for Modifications Modification Quarter 13Q2 13Q3 13Q4 14Q1 14Q2 14Q3 One quarter % change One year % change 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 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). Type of Modification Action by Investor and Product Type Fannie Mae Freddie Mac Governmentguaranteed 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% 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). 27 MODIFICATION ACTIVITY MODIFICATIONS AND LIQUIDATIONS 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. Loan Modifications and Liquidations Number of loans (thousands) 1,600 1,400 1,200 1,000 579.5 800 137.7 331.7 600 400 200 2008 2009 2010 2011 2012 2013 Proprietary mods Liquidations 0 2007 (Q3Q4) HAMP mods 2014 (Ann.) Sources: Hope Now Reports and Urban Institute. Note: Liquidations includes both foreclosure sales and short sales. Annualized figure based on data from November 2014. Cumulative Modifications and Liquidations 7.5 Number of loans (millions) 8 5.9 7 6 HAMP mods 5 Proprietary mods 4 Liquidations 1.4 3 2 1 Sources: Hope Now Reports and Urban Institute. Note: Liquidations includes both foreclosure sales and short sales. 0 2007 (Q3Q4) 2008 2009 2010 2011 2012 2013 2014 YTD 28 MODIFICATION ACTIVITY MODIFICATION REDEFAULT RATES BY BEARER OF THE RISK 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. Redefault Rate 12 Months after Modification 80% 70% Fannie Mae Freddie Mac Government-guaranteed Private Redefault rate 60% 50% 40% 30% 20% Portfolio Loans 10% Overall 0% 2008 2009 2010 2011 2012 2013 Year of modification Sources: OCC Mortgage Metrics Report for the Third Quarter of 2014 and Urban Institute. Redefault Rate 24 Months after Modification 80% 70% Fannie Mae Freddie Mac Government-guaranteed Private Portfolio loans Overall Redefault rate 60% 50% 40% 30% 20% 10% 0% 2008 2009 2010 2011 2012 Year of modification Sources: OCC Mortgage Metrics Report for the Third Quarter of 2014 and Urban Institute. 29 AGENCY ISSUANCE AGENCY GROSS AND NET ISSUANCE 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. Agency Gross Issuance Agency Net Issuance Issuance Year GSEs Ginnie Mae Total Issuance Year GSEs Ginnie Mae Total 2000 $360.6 $102.2 $462.8 2000 $159.8 $29.3 $189.1 2001 $885.1 $171.5 $1,056.6 2001 $367.8 -$9.9 $357.9 2002 $1,238.9 $169.0 $1,407.9 2002 $357.6 -$51.2 $306.4 2003 $1,874.9 $213.1 $2,088.0 2003 $335.0 -$77.6 $257.4 2004 $872.6 $119.2 $991.9 2004 $83.3 -$40.1 $43.2 2005 $894.0 $81.4 $975.3 2005 $174.4 -$42.2 $132.1 2006 $853.0 $76.7 $929.7 2006 $313.6 $0.3 $313.8 2007 $1,066.2 $94.9 $1,161.1 2007 $514.7 $30.9 $545.5 2008 $911.4 $267.6 $1,179.0 2008 $314.3 $196.4 $510.7 2009 $1,280.0 $451.3 $1,731.3 2009 $249.5 $257.4 $506.8 2010 $1,003.5 $390.7 $1,394.3 2010 -$305.5 $198.2 -$107.3 2011 $879.3 $315.3 $1,194.7 2011 -$133.4 $149.4 $16.0 2012 $1,288.8 $405.0 $1,693.8 2012 -$46.5 $118.4 $71.9 2013 $1,176.6 $393.6 $1,570.1 2013 $66.5 $85.8 $152.3 2014 $650.92 $296.26 $947.18 2014 $30.3 $59.8 $90.1 %Change year-over-year -44.7% -24.7% -39.7% %Change year-over-year -54.4% -30.3% -40.8% Sources: eMBS and Urban Institute. Note: Dollar amounts are in billions.. Sources: eMBS and Urban Institute. Note: Dollar amounts are in billions. 30 AGENCY GROSS AND NET AGENCY GROSS ISSUANCE & ISSUANCE BY MONTH FED PURCHASES AGENCY ISSUANCE Monthly Gross Issuance While government and GSE lending have dominated the mortgage market since the crisis, there has been a change in the mix. The Ginnie Mae share reached a peak of 28 percent of total agency issuance in 2010, declined to 25 percent in 2013, and has since then risen to 29 percent in December 2014. The 2014 increase in the Ginnie Mae share reflects the decline in refinance activity, as Ginnie Mae is less impacted by this decline. Fannie Mae ($ billions) Freddie Mac Ginnie Mae 250 200 150 100 50 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 0 Sources: eMBS, Federal Reserve Bank of New York and Urban Institute. December 2014 Fed Absorption of Agency Gross Issuance 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 $21.7 billion, yielding 23.6 percent Fed absorption of gross issuance, down from October’s 27 percent. Gross issuance ($ billions) Total Fed purchases 250 200 150 100 50 0 2001 2002 2003 2004 2005 2006 2007 2008 Sources: eMBS, Federal Reserve Bank of New York and Urban Institute. 2009 2010 2011 2012 2013 2014 December 2014 31 AGENCY ISSUANCE MORTGAGE INSURANCE ACTIVITY MI Activity 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. Total private primary MI FHA VA Total 200 150 $123.0 100 $54.0 50 $38.0 0 1Q11 $31.1 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 Sources: Inside Mortgage Finance and Urban Institute. MI Market Share Total private primary MI FHA VA 24.7% 100% 90% 80% 34.0% 70% 60% 50% 40% 41.3% 30% 20% 10% 0% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Q1-3 Sources: Inside Mortgage Finance and Urban Institute. 32 AGENCY ISSUANCE MORTGAGE INSURANCE ACTIVITY 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. 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 7/14/2008 - 4/5/2010* 4/5/2010 - 10/3/2010 10/4/2010 - 4/17/2011 4/18/2011 - 4/8/2012 4/9/2012 - 6/10/2012 6/11/2012 - 3/31/2013a 4/1/2013 – 1/25/2015b Beginning 1/26/2015c 150 175 225 100 100 175 175 175 175 50 55 55 90 115 125 125 135 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. Initial Monthly Payment Comparison: FHA vs. PMI Assumptions Property Value Loan Amount LTV Base Rate Conforming FHA FICO FHA MI Premiums FHA UFMIP FHA MIP* PMI GSE AMDC & LLPA PMI Annual MIP Monthly Payment FHA PMI PMI Advantage $250,000 $241,250 96.5 4.29% 4.00% 620 - 639 640 - 659 660 - 679 680 - 699 700 - 719 720 - 739 740 - 759 760 + 1.75 0.85 1.75 0.85 1.75 0.85 1.75 0.85 1.75 0.85 1.75 0.85 1.75 0.85 1.75 0.85 3.75 1.48 3.00 1.48 2.50 1.48 1.75 1.31 1.75 1.31 1.25 1.10 1.00 1.10 1.00 1.05 $1,343 $1,593 ($250) $1,343 $1,571 ($228) $1,343 $1,556 ($213) $1,343 $1,500 ($157) $1,343 $1,500 ($157) $1,343 $1,444 ($101) $1,343 $1,436 ($93) $1,343 $1,426 ($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.. 33 RELATED HFPC WORK PUBLICATIONS AND EVENTS 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 (Arincon@urban.org) Publications Blog Posts FHFA’s Federal Home Loan Bank Members Proposal Overshoots the Mark Authors: Laurie Goodman, Jim Parrott and Karan Kaul Date: January 13, 2015 Four impacts of the Federal Housing Administration’s premium cut Authors: Karan Kaul and Bing Bai Date: January 21, 2015 A Review and Critique of the 2014 actuarial assessment of FHA’s Mortgage Insurance Fund Author: Laurie Goodman Date: January 6, 2014 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 Servicing: An Underappreciated Constraint to Access to Credit Author: Laurie Goodman Date: December 16, 2014 FHA: Time to stop overcharging borrowers for yesterday’s mistakes Authors: Laurie Goodman, Bing Bai snf Jun Zhu Date: January 6, 2014 A Better Measure of Mortgage Application Denial Rates Authors: Wei Li and Laurie Goodman Date: December 2, 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 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 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 34 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. 35 INSTITUTE-ELEVATE-THE-DEBATE