High LTV Conforming Loans not Threatening FHA


The government sponsored enterprises” (GSE’s)
introduction of 97 percent loan-to-value (LTV) mortgages, implemented by Fannie
Mae’ in late 2014 and by Freddie Mac in the spring of 2015, has apparently done
little damage
to the government guarantee sector’s dominance in that market
place.  Black Knight Financial Services’ most
recent Mortgage Monitor points out
that the Federal Housing Administration (FHA) and the Veterans’ Administration
(VA) loan programs have continued as the primary drivers in that expanding segment
of purchase mortgage lending.

Low downpayment lending, that is
mortgages with a 95 percent or higher LTV ratio, were up 20 percent in the
third quarter of 2015 compared to the same period in 2014 while the overall
purchase market expanded by only 13 percent. 
Despite this increase the GSEs’ new products garnered only 3 percent of
those low down-payment originations. 



One factor that probably mitigated
against greater use of the GSEs’ new loans was a 50 basis point reduction in
the FHA annual mortgage insurance premium which went into effect as Fannie and
Freddie’s products were being rolled out. 

Black Knight Data Analytics
Senior Vice President Ben Graboske said, “High-LTV products now account for 23
percent of all purchase originations
. What’s particularly interesting is how
heavily this market is dominated by FHA/VA. Back in 2007, the GSEs made up over
45 percent of high-LTV purchase originations, while FHA/VA lending made up
roughly one-third. Since 2009, FHA/VA products have made up over 90 percent of
high-LTV purchase originations every year, and the same is true in 2015, even
with the GSEs having reintroduced their own 97 percent LTV products. In fact,
those products have accounted for less than 3 percent of all high-LTV
originations so far this year.



we reported last month, recent increases in purchase lending have been driven
primarily by higher-credit- score borrowers, and these high-LTV products are no
exception. We’ve seen average credit scores on high-LTV FHA/VA loans rise six
points from last year to 706. Of course, scores for GSE and portfolio high-LTV
loans are roughly 35 points higher still. We’ve actually seen annual declines
in high-LTV lending among 620-660 credit scores for each of the past six months
even though overall high-LTV purchase volumes have risen in each of those
months. This may be attributed to tightening credit, or it may be that the
FHA’s reduced annual mortgage insurance – which FHA estimates will reduce
borrowers’ mortgage payments by $900/year – has enticed some higher-credit
borrowers into those FHA products.”



High LTV lending also comprises the
lion’s share of FHA and VA purchase originations – 77 percent for the year
through August – while making up only 1 percent of the GSEs’ purchase
lending.  Portfolio lending is also
skewed toward lower LTV loans, they make up two thirds of that purchase
lending, and the high LTV loans that are made by that investor group tend to be
in higher credit tranches.  Nearly 75
percent of high LTV purchase loans made by portfolio lenders had credit scores
above 700 while half of all such FHA/VA originations had scores below that



The Monitor
also found that residential home sales so far in 2015 are 4 percent higher
than at the same time last year but the share of traditional sales has risen by
7 percent
.  The sale of lender owned real
estate (REO) and short sales had fallen to 8.8 percent in July, the lowest
since 2007 after falling on an annual basis for 42 consecutive months.  The cash share of overall purchase
transactions has likewise fallen to its lowest level since Q3 2008, accounting
for 28 percent of single-family transaction in the third quarter compared to 32
percent a year earlier.   The cash share of condo sales fell below 50
percent in the second quarter for the first time in nearly five years although
it is still at twice the rate seen in 2005 and 2006. 

As of September, the U.S. has now
experienced 41 consecutive months of annual home price appreciation.  That month, with annual appreciation of 5.5
percent, had the largest gain thus far in 2015. 
The trend of decelerating price increases seen going into the year has
now reversed itself and September also marked the ninth consecutive month in
which annual appreciation increased.



Colorado stands out among all states
with a near 11 percent annual gain, leading the country in annual home price
appreciation for the 10th consecutive month.  Home prices in Colorado are
now 19 percent above their 2006 prior peak levels. North Dakota – fueled by the
oil boom there – leads the nation in terms of growth over pre-crisis peaks,
with home prices 31 percent above 2006 levels.  Nineteen states and Washington DC have now
surpassed their price peaks of 2005-2006.



Missouri is the only state that saw an
annual home price decline in September, with home prices in the state down 1.9
percent from last year, driven primarily by a decline in the St. Louis metro
area. Declines in St. Louis were most pronounced on homes valued in the high
end (down 7 percent) and the low end (down 5 percent), with a metro area
average decline of 4 percent.

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