Black Knight: FHA, VA Dominate High-LTV Mortgage Market

Posted by Patrick Barnard on December 07, 2015 No Comments
Categories : Residential Mortgage

Although government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac rolled out new 97% loan-to-value (LTV) programs last year, in an effort to free up more credit for first-time and underserved borrowers, lenders have not made much use of the GSEs' programs so far, a report from Black Knight Financial Services shows.

The firm's Mortgage Monitor report shows that the new high-LTV programs from the GSEs made up only 3% of all high-LTV originations so far this year.

Instead, lenders continue to use similar high-LTV programs offered through the Federal Housing Administration (FHA) and Veterans Affairs (VA), the firm's research shows.

‘High-LTV purchase mortgage originations were up 20 percent in the third quarter [compared with the third quarter of 2014],’ explains Ben Graboske, senior vice president of Black Knight Data & Analytics, in a statement. ‘That's compared to an approximately 13 percent increase for the purchase market overall. 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,’ Graboske says. ‘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 three percent of all high-LTV originations so far this year.’

In its Mortgage Monitor report for September, Black Knight reveals that the recent increase in purchase loan volume is being driven mainly by borrowers with higher credit scores – and, as Graboske points out, this is true for the high-LTV loans, as well.

‘We've seen average credit scores on high-LTV FHA/VA loans rise six points from last year to 706,’ he says. ‘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 to 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 the FHA estimates will reduce borrowers' mortgage payments by $900 per year – has enticed some higher-credit borrowers into those FHA products.’

The report also finds that home sales to date are up 4% compared with last year, as traditional sales have risen 7% and distressed sales have decreased 13%.

In addition, it finds that the cash share of purchases in the third quarter reached the lowest level since the third quarter of 2008. For single-family homes, cash sales made up 28% of all purchases in the third quarter – down from 32% compared with the third quarter last year and down from 43% at the peak in 2012.

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