HOUSING FINANCE AT A GLANCE

Transcription

1 HOUSING FINANCE POLICY CENTER HOUSING FINANCE AT A GLANCE A MONTHLY CHARTBOOK January

2 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. HOUSING FINANCE POLICY CENTER STAFF Laurie Goodman Center Director Ellen Seidman Senior Fellow Jim Parrott Senior Fellow Jun Zhu Senior Financial Methodologist Wei Li Senior Research Associate Bing Bai Research Associate I Pamela Lee Research Associate I Taz George Research Assistant Maia Woluchem Research Assistant Alison Rincon Special Assistant to the Director We would like to thank The Citi Foundation and The John D. and Catherine T. MacArthur Foundation for providing generous support at the leadership level to launch the Housing Finance Policy Center. Additional support was provided by the Ford Foundation and the Open Society Foundations. We are also especially grateful to Sarah Rosen Wartell, president of the Urban Institute, and Rolf Pendall, director of the Metropolitan Housing and Communities Policy Center, for their creative visions and valuable insights. We welcome your feedback. Please send any comments or questions to ataglance@urban.org. 2

3 INTRODUCTION With housing and general economic indicators showing improvement in 2013, we expect several trends to carry over to the new year. These three crucial factors will influence the housing market in 2014: Higher interest rates have curtailed refinance activity, which now represents just over half of GSE business and a quarter of Ginnie Mae s, down from 2012 peaks of 82 percent and 58 percent respectively (page 10). As mortgage origination shifts to a predominantly purchase business, originator profitability has fallen, according to the Federal Reserve Bank of New York (page 12). The Federal Reserve began tapering in January 2014 and we expect additional tapering as the economy strengthens. As we witnessed in 2013, when gross issuance declines but the Fed does not reduce new purchases, it purchases a much higher share of gross supply up from 47 percent in the first half of the year to 68 percent by December (page 30). Foreclosure activity is receding as the housing market rebounds. Since the 2011 trough, home prices nationwide have increased by 22.4 percent, and the share of properties with negative equity or in serious delinquency is down (pages 16-17). However, neither the decline in foreclosure activity nor the home price recovery has been uniform. For example, in contrast to the national trend, both Maryland and New Jersey have experienced increases in foreclosure activity. The recovery in home prices has also been uneven, with prices in Denver, Houston and Dallas above their peaks while Riverside and Phoenix are still well below their peaks (page 16). Given this backdrop, expanding the credit box and bringing private capital back are themes that will dominate discussions about housing finance reform and housing policy this year. In the wake of the financial crisis, credit standards were tightened appreciably. The average FICO score for new purchase originations crept up to 746 from 700 a decade ago (page 13). Average downpayments remain high, especially in California MSAs and the New York region (page 14). What will new FHFA Director Mel Watt do to address the tight credit box? Of the many questions facing Watt is how to bring private capital back to the market. Some argue for g-fees increases to shrink the GSEs footprint; others posit that g-fees should be kept constant, but that risk-sharing should increase. Watt s decision to reverse former Acting Director DeMarco s 11 th hour g-fee increase (after a string of increases over the past few years) while allowing Fannie s second risk-sharing deal to proceed, may be a sign of a new direction for the FHFA (page 20). Meanwhile, Watt must determine whether g-fees for higher-quality loans are subsidizing the risk of lowerquality loans, and whether such cross-subsidization is appropriate. Additionally, he must consider whether total g-fees adequately cover the risk of the entire portfolio. Outside of At A Glance, we released two analyses this month: one exploring the implications of recent changes to FHA loan limits and identifying significant potential impacts in some regions, and another analyzing the relationship between mortgage payments and rents, illustrating that current patterns are not indicative of a housing bubble. We look forward to exploring trends and issues in housing finance with you in the coming year, and hope that you will continue to rely on At A Glance as a resource. Inside this issue: Fannie Mae, Freddie Mac and the Mortgage Bankers Association more pessimistic about originations outlook for 2014 (page 11) Originator profitability ticks down in December (page 12) Credit remains tight in California MSAs (page 14) Details of recent GSE risk-sharing transactions (page 20) Extending HARP cutoff date would affect relatively few borrowers (page 24) Liquidations down significantly in 2013 from 2012 according to Hope Now (page 27) New performance and composition metrics from GSEs loan-level credit database (pages 33-37) 3

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 by Product Type 7 Agency Mortgage-Backed Securities 7 Origination Volume and Composition First Lien Origination (Volume & Share) 8 Securitization Volume and Composition Agency/Non-Agency Share of Residential MBS Issuance 9 Non-Agency MBS Issuance 9 Non-Agency Securitization Agency Activity: Volumes and Purchase/Refi Composition At-Issuance Balance 10 Percent Refi at Issuance 10 State of the Market Mortgage Origination Projections Total Originations and Refinance Shares 11 Housing Starts and Home Sales 11 Originator Profitability Originator Profitability and Unmeasured Costs (OPUC) 12 Credit Availability for Purchase Loans Borrower FICO Score at Origination Month 13 Combined LTV at Origination Month 13 Origination FICO and LTV by MSA 14 Housing Affordability National Housing Affordability Over Time 15 Affordability Adjusted for MSA-Level DTI 15 Home Price Indices National Year-Over-Year HPI Growth 16 Changes in CoreLogic HPI for Top MSAs 16 Negative Equity and Serious Delinquency Negative Equity Share 17 Loans in Serious Delinquency and Foreclosure 17 GSEs under Conservatorship GSE Portfolio Wind-Down: Fannie Mae Fannie Mae Mortgage-Related Investment Portfolio Over Time (Volume & Share) 18 GSE Portfolio Wind-Down: Freddie Mac Freddie Mac Mortgage-Related Investment Portfolio Over Time (Volume & Share) 19 4

5 CONTENTS Effective Guarantee Fees Effective Guarantee Fees 20 GSE Risk-Sharing Transactions 20 Serious Delinquency Rates Serious Delinquency Rates Fannie Mae & Freddie Mac 21 Serious Delinquency Rates Single-Family Loans & Multifamily GSE Loans 22 Refinance Activity Total HARP Refinance Volume 23 HARP Refinances 23 GSE Loans: Potential Refinances Loans Meeting HARP Pay History Requirements 24 Modification Activity HAMP Activity New HAMP Modifications 25 Cumulative HAMP Modifications 25 Modification by Type of Action and Bearer of Risk Changes in Loan Terms for Modifications 26 Type of Modification Action by Investor and Product Type 26 Modifications and Liquidations Loan Modifications and Liquidations (By Year & Cumulative) 27 Modification Redefault Rates by Bearer of the Risk Redefault Rate after Modification (12 Months & 24 Months) 28 Agency Issuance Agency Gross and Net Issuance Agency Gross Issuance 29 Agency Net Issuance 29 Agency Gross Issuance and Fed Purchases Monthly Gross Issuance 30 Fed Absorption of Agency Gross Issuance 30 Mortgage Insurance Activity MI Activity 31 MI Market Share 31 FHA MI Premiums for Typical Purchase Loan 32 Quarterly Feature: Loan Level Credit Data from the GSEs Fannie Mae Balance & Default Rate Freddie Mac Balance & Default Rate Fannie Mae Cumulative Default Rate by Vintage Year 37 Freddie Mac Cumulative Default Rate by Vintage Year 38 Related HFPC Work Publications and Events

6 OVERVIEW MARKET SIZE OVERVIEW Home values continue to improve, increasing the total value of the US residential housing market. According to the 2013 Q3 Fed Flow of Funds report, the total size of the mortgage market stands at $9.87 trillion, a slight uptick from the previous quarter. This is the first quarterly increase in total mortgage debt outstanding since early 2008, driven largely by a $50 billion increase in agency mortgage-backed securities (MBS), 1.7 percent higher than in 2013 Q2. Agency MBS now make up 60.3 percent of the total, private-label securities make up 8.3 percent, and unsecuritized first liens at commercial banks, savings institutions, and credit unions make up 18.9 percent. Second liens and GSE loans in portfolio comprise the remaining 7.2 and 5.3 percent of the total, respectively. $25 Value of the US Housing Market as of Q Size of the US Residential Mortgage Market as of Q $20 Unsecuritized first liens at commercial banks, savings institutions, credit unions Fannie and Freddie loans in portfolio Agency MBS $ trillions $15 Equity, $ Private-label securities Second liens $10 $10.0 $1.865 $5 Debt, household mortgages, Debt, $9,833 Household Mortgages $9.865 $ trillions $7.5 $5.0 $0.519 $5.945 $2.5 $0 $0.0 $0.819 $0.715 Sources: Federal Reserve Flow of Funds and Urban Institute. Sources: Federal Reserve Flow of Funds, Inside Mortgage Finance, Fannie Mae, Freddie Mac and Urban Institute. 6

7 OVERVIEW MARKET SIZE OVERVIEW As of November 2013, debt in the private-label securitization market is split among prime (20.2 percent), Alt-A (43.7 percent), and subprime (36.1 percent) loans. The agency market, as of September 2013, is 48.7 percent Fannie Mae, 28.1 percent Freddie Mac, and 23.2 percent Ginnie Mae securities. 100% Private Label Securities by Product Type as of November 2013; dollars in trillions 90% Prime, $ % 70% 60% 50% Alt-A, $ % 30% 20% 10% Subprime, $ % Sources: CoreLogic and Urban Institute. Agency Mortgage-Backed Securities as of Q3 2013; dollars in trillions 100% 90% 80% 70% Fannie Mae, $ % 50% 40% 30% Freddie Mac, $ % 10% Ginnie Mae, $ % Sources: Inside Mortgage Finance and Urban Institute. 7

8 OVERVIEW OVERVIEW ORIGINATION VOLUME AND COMPOSITION First Lien Origination Volume First lien originations through the first three quarters of 2013 stand at $1.55 trillion originations will likely fall just short of 2012's $2.12 trillion due to the impact of higher rates. Year-to-date private label originations, at $12.2 billion, are still very small but already double last year's amount. $4.0 $3.5 $3.0 Bank portfolio PLS total securitization FHA/VA securitization GSE securitization $ trillions $2.5 $2.0 $1.5 $1.0 $0.5 $0.0 $0.30 $0.01 $0.30 $0.93 Sources: Inside Mortgage Finance and Urban Institute (Q1-3) First Lien Origination Share The GSE share of first lien originations remains elevated compared with historical levels, now sitting at 67 percent. Likewise, FHA and VA continue to hold a much larger share, with 20.5 percent of the market. While private-label originations are less than 1 percent, that constitutes an increase from the depths of the recession, when such originations all but disappeared. 100% 90% 80% 70% 60% 50% 40% Bank portfolio 30% PLS total securitization 20% FHA/VA securitization 10% GSE securitization 0% 2001 Sources: Inside Mortgage Finance and Urban Institute (Q1-3) 8

9 OVERVIEW SECURITIZATION VOLUME AND COMPOSITION Agency/Non-Agency Share of Residential MBS Issuance Non-agency single-family MBS issuance has ticked up but remained less than 2 percent of the market for 2013, and the share is even lower excluding Re-REMICs. Over this period, total non-agency issuance was $31.1 billion, compared to $12.7 billion for all of This represents significant progress, but still pales in comparison to non-agency numbers in the pre-bubble years such as 2002, when issuance reached $400 billion. The pace of new securitization slowed dramatically in October, but pricing and volume improved slightly in November and December. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Sources: Inside Mortgage Finance and Urban Institute Agency share Non-Agency share 98% 2% Non-Agency MBS Issuance $1,200 $1,000 Non-Agency Securitization 2.0 $12 $10 $ billions $800 $600 $400 $ billions $8 $6 $4 $200 $2 $ (Q1-3) Prime Subprime Alt A All other Sources: Inside Mortgage Finance and Urban Institute. $0 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 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 Sources: Inside Mortgage Finance and Urban Institute. Note: Monthly figures equal total non-agency MBS issuance minus Re-REMIC issuance. 9

10 OVERVIEW AGENCY ACTIVITY: VOLUMES AND PURCHASE/REFI COMPOSITION Agency issuance totaled $1.57 trillion in In December, refinances were just over half of the GSEs business, down from over 80 percent in January The decline reflects rising interest rates. The Ginnie Mae market has always been more purchase-driven, and its refinancing volume is down to 24.4 percent in December from 56 percent in January. At-Issuance Balance $2.5 Freddie Mac Fannie Mae Ginnie Mae $2.0 $ trillions $1.5 $1.0 $0.5 $ $0.4 $0.7 $0.4 Sources: embs and Urban Institute. Percent Refi at Issuance 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Freddie Mac Fannie Mae Ginnie Mae Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec % 50.9% 24.4% Sources: embs and Urban Institute. Note: Based on at-issuance loan balance. 10

11 OVERVIEW STATE OF THE MARKET MORTGAGE ORIGINATION PROJECTIONS The sharp drop in mortgage originations in 2013 Q4 combined with higher interest rates has led the MBA, Fannie Mae, and Freddie Mac to lower their 2014 estimate for origination activity. Note that Fannie, Freddie and the MBA all estimate the 2014 refi share at percent, not far off from 2013 Q4. The housing market is expected to pick up further in 2014, with both housing starts and existing home sales up sharply. Total Originations and Refinance Shares Originations ($B) Refi Share (%) Period Total, FNMA estimate Total, FHLMC estimate Total, MBA estimate FNMA estimate FHLMC estimate MBA estimate 2013 Q Q Q Q Q Q Q Q FY ,496 1,500 1, FY ,153 2,130 2, FY ,817 1,900 1, FY ,255 1,410 1, FY ,145 1,190 1, Note: Shaded boxes indicate forecasted figures. All figures are estimates for total single-family market; column labels indicate source of estimate. The yearly averages for interest rates in 2011, 2012, and 2013 were 4.5, 3.7, and 4.0, respectively. The projected average annual rates for 2014 and 2015 range from 4.8 to 4.9, and 5.2 to 5.6, respectively. Sources: Mortgage Bankers Association, Fannie Mae, Freddie Mac and Urban Institute. Housing Starts and Homes Sales Year Housing Starts, thousands Total, FNMA estimate Total, FHLMC estimate Total, MBA estimate Total, FNMA estimate Total, FHLMC estimate Home Sales Total, MBA estimate Existing, MBA estimate New, MBA Estimate FY ,566 4,570 4,501 4, FY ,028 5,030 5,030 4, FY ,523 5,530 5,599 5, FY ,106 1,100 1,043 5,697 5,900 5,905 5, FY ,356 1,350 1,145 6,026 6,100 6,052 5, Note: Shaded boxes indicate forecasted figures. All figures are estimates for total single-family market. Column labels indicate source of estimate. Sources: Mortgage Bankers Association, Fannie Mae, Freddie Mac and Urban Institute. 11

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 mortgage interest rates have risen 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 rising steadily over the past few years, the so-called primary-secondary spread has become a very imperfect measure to compare profitability across time. This 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. Originator Profitability and Unmeasured Costs (OPUC) 6 OPUC 5 Dollars per $100 loan Jun-00 Dec-00 Jun-01 Dec-01 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 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. Source: Federal Reserve Bank of New York, updated monthly and will be available at this link: and Urban Institute. 12

13 STATE OF THE MARKET OVERVIEW CREDIT AVAILABILITY FOR PURCHASE LOANS Access to credit has become extremely limited and continues to tighten, especially for borrowers with low FICO scores. The 10th percentile of FICO scores on new originations, which represents the lower bound of creditworthiness needed to qualify for a mortgage, stood at 660 as of November Prior to the housing crisis, this threshold held steady in the low 600s. LTV levels at origination remain relatively high at 84.8, which reflects the large number of FHA purchase originations. Borrower FICO Score at Origination Month 850 FICO Score th percentile Mean 10th percentile Nov-00 May-01 Nov-01 May-02 Nov-02 May-03 Nov-03 May-04 Nov-04 May-05 Nov-05 May-06 Nov-06 May-07 Nov-07 May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11 Nov-11 May-12 Nov-12 May-13 Nov-13 Sources: CoreLogic Prime Servicing as of November 2013 and Urban Institute. Note: Purchase-only loans. Combined LTV at Origination 110 LTV th percentile Mean 10th percentile Nov-00 May-01 Nov-01 May-02 Nov-02 May-03 Nov-03 May-04 Nov-04 May-05 Nov-05 May-06 Nov-06 May-07 Nov-07 May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11 Nov-11 May-12 Nov-12 May-13 Nov-13 Sources: CoreLogic Prime Servicing as of November 2013 and Urban Institute. Note: Purchase-only loans. 13

14 STATE OF THE MARKET OVERVIEW CREDIT AVAILABILITY FOR PURCHASE LOANS Credit has been tight for all borrowers with less than stellar credit scores, but there are significant variations across MSAs. The mean origination FICO for borrowers in San Francisco-San Mateo-Redwood City, CA is over 770, while in San Antonio-New Braunfels, TX it is less than 720. Note that across all MSAs, lower FICO scores go hand in hand with high LTVs at origination. Origination FICO and LTV by MSA 780 Mean origination FICO score Mean origination LTV FICO score LTV SAN FRANCISCO-SAN MATEO-REDWOOD CITY, CA SAN JOSE-SUNNYVALE-SANTA CLARA, CA OAKLAND-FREMONT-HAYWARD, CA LOS ANGELES-LONG BEACH-GLENDALE, CA NEW YORK-WHITE PLAINS-WAYNE, NY-NJ SEATTLE-BELLEVUE-EVERETT, WA SAN DIEGO-CARLSBAD-SAN MARCOS, CA NASSAU-SUFFOLK, NY NEWARK-UNION, NJ-PA PORTLAND-VANCOUVER-HILLSBORO, OR-WA DENVER-AURORA-BROOMFIELD, CO BOSTON-QUINCY, MA PHILADELPHIA, PA MINNEAPOLIS-ST. PAUL-BLOOMINGTON, MN WASHINGTON-ARLINGTON-ALEXANDRIA, DC-VA SACRAMENTO--ARDEN-ARCADE--ROSEVILLE, CA CHICAGO-JOLIET-NAPERVILLE, IL COLUMBUS, OH CHARLOTTE-GASTONIA-ROCK HILL, NC-SC TAMPA-ST. PETERSBURG-CLEARWATER, FL BALTIMORE-TOWSON, MD HOUSTON-SUGAR LAND-BAYTOWN, TX ORLANDO-KISSIMMEE-SANFORD, FL ATLANTA-SANDY SPRINGS-MARIETTA, GA ST. LOUIS, MO-IL CINCINNATI-MIDDLETOWN, OH-KY-IN KANSAS CITY, MO-KS RIVERSIDE-SAN BERNARDINO-ONTARIO, CA PITTSBURGH, PA DALLAS-PLANO-IRVING, TX PHOENIX-MESA-GLENDALE, AZ CLEVELAND-ELYRIA-MENTOR, OH MIAMI-MIAMI BEACH-KENDALL, FL LAS VEGAS-PARADISE, NV DETROIT-LIVONIA-DEARBORN, MI FORT WORTH-ARLINGTON, TX SAN ANTONIO-NEW BRAUNFELS, TX 60 Sources: CoreLogic Prime Servicing as of November 2013 and Urban Institute. Note: Purchase-only loans. 14

15 STATE OF THE MARKET HOUSING AFFORDABILITY National Housing Affordability Over Time The maximum affordable price is the house price that a family can afford based on the following assumptions: 20% down payment, monthly payment of 28% of median family income (US Census), Freddie Mac prevailing rate for 30-year fixed-rate mortgage, and property tax and insurance at 1.75% of housing value. Median sales price Max affordable price Max affordable price at 6.0% rate Housing prices $300,000 $280,000 $260,000 $240,000 $220,000 $200,000 $180,000 $160,000 $140,000 $120,000 Sources: CoreLogic, US Census, Freddie Mac and Urban Institute. Credit Bubble Nov-00 May-01 Nov-01 May-02 Nov-02 May-03 Nov-03 May-04 Nov-04 May-05 Nov-05 May-06 Nov-06 May-07 Nov-07 May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11 Nov-11 May-12 Nov-12 May-13 Nov-13 Affordability Adjusted for MSA-Level DTI Ratio LOS ANGELES-LONG BEACH-GLENDALE, CA WASHINGTON-ARLINGTON-ALEXANDRIA, DC-VA SAN JOSE-SUNNYVALE-SANTA CLARA, CA PORTLAND-VANCOUVER-HILLSBORO, OR-WA SAN FRANCISCO-SAN MATEO-REDWOOD CITY, CA SEATTLE-BELLEVUE-EVERETT, WA NEW YORK-WHITE PLAINS-WAYNE, NY-NJ BALTIMORE-TOWSON, MD PHOENIX-MESA-GLENDALE, AZ BOSTON-QUINCY, MA SAN DIEGO-CARLSBAD-SAN MARCOS, CA NASSAU-SUFFOLK, NY DALLAS-PLANO-IRVING, TX MIAMI-MIAMI BEACH-KENDALL, FL PHILADELPHIA, PA CHARLOTTE-GASTONIA-ROCK HILL, NC-SC RIVERSIDE-SAN BERNARDINO-ONTARIO, CA NEWARK-UNION, NJ-PA SAN ANTONIO-NEW BRAUNFELS, TX HOUSTON-SUGAR LAND-BAYTOWN, TX OAKLAND-FREMONT-HAYWARD, CA ORLANDO-KISSIMMEE-SANFORD, FL FORT WORTH-ARLINGTON, TX MINNEAPOLIS-ST. PAUL-BLOOMINGTON, MN ATLANTA-SANDY SPRINGS-MARIETTA, GA SACRAMENTO--ARDEN-ARCADE--ROSEVILLE, DENVER-AURORA-BROOMFIELD, CO TAMPA-ST. PETERSBURG-CLEARWATER, FL ST. LOUIS, MO-IL COLUMBUS, OH CHICAGO-JOLIET-NAPERVILLE, IL PITTSBURGH, PA KANSAS CITY, MO-KS LAS VEGAS-PARADISE, NV CINCINNATI-MIDDLETOWN, OH-KY-IN DETROIT-LIVONIA-DEARBORN, MI CLEVELAND-ELYRIA-MENTOR, OH Note: Affordability index is calculated relative to home prices in A ratio above 1 indicates higher affordability in November 2013 than in Sources: CoreLogic, US Census, Freddie Mac and UI calculations based on NAR methodology. 15

16 STATE OF THE MARKET HOME PRICE INDICES National Year-Over-Year HPI Growth The year-over-year house price growth has been strong through November 2013, as indicated by both the repeated sales HPI from CoreLogic and hedonic index from Zillow. CoreLogic HPI year-over-year Zillow HVI year-over-year Year-over-year growth rate 20% 15% 10% 5% 0% -5% -10% -15% -20% Nov-00 May-01 Nov-01 May-02 Nov-02 May-03 Nov-03 May-04 Nov-04 May-05 Nov-05 May-06 Nov-06 May-07 Nov-07 May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11 Nov-11 May-12 Nov-12 May-13 Nov % 7.1% Sources: CoreLogic, Zillow and Urban Institute. Changes in CoreLogic HPI for Top MSAs Despite rising 22.4 percent from the trough, national house prices still must grow 21.4 percent to reach peak pre-crisis levels. At the MSA level, three of the top 15 MSAs have reached their peak HPI Houston, TX; Dallas, TX; and Denver, CO. One MSA particularly hard hit by the boom and bust Riverside, CA remains more than 50 percent below its peak. MSA 2000 to Peak HPI Changes Peak to Trough Trough to Current % Rise Needed to Achieve Peak United States 99.5% -32.7% 22.4% 21.4% New York-Jersey City-White Plains NY-NJ 117.2% -20.1% 12.5% 11.3% Los Angeles-Long Beach-Glendale CA 182.4% -39.4% 33.6% 23.5% Chicago-Naperville-Arlington Heights IL 65.6% -36.6% 17.4% 34.3% Atlanta-Sandy Springs-Roswell GA 40.6% -33.8% 28.7% 17.4% Washington-Arlington-Alexandria DC-VA-MD-WV 160.6% -33.6% 25.1% 20.4% Houston-The Woodlands-Sugar Land TX 44.4% -12.8% 19.4% -3.9% Phoenix-Mesa-Scottsdale AZ 126.3% -53.0% 44.9% 46.7% Riverside-San Bernardino-Ontario CA 194.7% -53.4% 38.0% 55.6% Dallas-Plano-Irving TX 38.3% -14.0% 16.9% -0.6% Minneapolis-St. Paul-Bloomington MN-WI 74.5% -30.9% 21.3% 19.3% Seattle-Bellevue-Everett WA 94.4% -32.4% 25.9% 17.5% Denver-Aurora-Lakewood CO 36.3% -14.7% 23.7% -5.2% Baltimore-Columbia-Towson MD 128.6% -25.8% 7.9% 25.0% San Diego-Carlsbad CA 149.0% -38.4% 30.4% 24.5% Anaheim-Santa Ana-Irvine CA 163.2% -37.2% 32.9% 19.9% Sources: CoreLogic HPIs as of November 2013 and Urban Institute. Note: This table includes the largest 15 Metropolitan areas by mortgage count. 16

17 OVERVIEW STATE OF THE MARKET NEGATIVE EQUITY AND SERIOUS DELINQUENCY Negative Equity Share With housing prices appreciating through September 2013, residential properties in negative equity (LTV greater than 100) as a share of all residential properties with a mortgage has dropped to 13 percent. Residential properties in near negative equity (LTV between 95 and 100) comprise another 3.2 percent. 35% 30% Negative equity Near negative equity 25% 20% 15% 10% 16.2% 13.0% 5% 0% 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 Sources: CoreLogic and Urban Institute. Loans in Serious Delinquency and Foreclosure Serious delinquencies and foreclosures continue to decline with the housing recovery, but remain quite high relative to the early 2000s. 12% 10% 8% Percent of loans 90 days or more delinquent Percent of loans in foreclosure Percent of loans in 90 days or more delinquent or in foreclosure 6% 4% 2% 0% 1Q00 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 5.7% 3.1% 2.6% Sources: Mortgage Bankers Association and Urban Institute. 17

18 OVERVIEW GSES UNDER PORTFOLIO CONSERVATORSHIP WIND DOWN: FANNIE GSE PORTFOLIO MAE WIND-DOWN: FANNIE MAE Under conservatorship, both Fannie Mae and Freddie Mac have shrunk their portfolios and shifted their mix of assets, as the agency MBS share is shrinking more rapidly than the less liquid assets (mortgage loans and non-agency MBS). Agency MBS now comprises 27.8 percent of the Fannie portfolio and 40.4 percent of the Freddie portfolio. Both GSEs are well under their portfolio cap of $552.5 billion for As of the end of November, Fannie stood at $495.7 billion and Freddie at $466.8 billion. Fannie Mae Mortgage-Related Investment Portfolio Composition Over Time (Volume) Current size: $495.7 billion Current cap: $552.5 billion Shrinkage year-to-date: 20.1% Mortgage loans Non-agency MBS Non-FNMA agency MBS Fannie MBS in portfolio $ billions Sources: Fannie Mae and Urban Institute May-06 Aug-06 Nov-06 Feb-07 May-07 Aug-07 Nov-07 Feb-08 May-08 Aug-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Fannie Mae Mortgage-Related Investment Portfolio Composition Over Time (Share) Less liquid assets (mortgage loans and nonagency MBS) = 72.2% Mortgage loans Non-agency MBS Non-FNMA agency MBS Fannie MBS in portfolio Percentage of end balance Sources: Fannie Mae and Urban Institute. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% May-06 Aug-06 Nov-06 Feb-07 May-07 Aug-07 Nov-07 Feb-08 May-08 Aug-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 18

19 OVERVIEW GSES UNDER PORTFOLIO CONSERVATORSHIP WIND DOWN: FREDDIE GSE PORTFOLIO MAC WIND-DOWN: FREDDIE MAC Freddie Mac Mortgage-Related Investment Portfolio Composition Over Time (Volume) Current size: $466.8 billion Current cap: $552.5 billion Shrinkage year-to-date: 15.1% Mortgage loans Non-agency MBS Non-FHLMC agency MBS FHLMC MBS in portfolio $ billions Sources: Freddie Mac and Urban Institute 1, May-05 Aug-05 Nov-05 Feb-06 May-06 Aug-06 Nov-06 Feb-07 May-07 Aug-07 Nov-07 Feb-08 May-08 Aug-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Freddie Mac Mortgage-Related Investment Portfolio Composition Over Time (Share) Less liquid assets (mortgage loans and nonagency MBS) = 59.5% Mortgage loans Non-agency MBS Non-FHLMC agency MBS FHLMC MBS in portfolio Percentage of end balance Sources: Freddie Mac and Urban Institute. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% May-05 Aug-05 Nov-05 Feb-06 May-06 Aug-06 Nov-06 Feb-07 May-07 Aug-07 Nov-07 Feb-08 May-08 Aug-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 19

20 GSES UNDER CONSERVATORSHIP EFFECTIVE GUARANTEE FEES Effective Guarantee Fees G-fees on new Fannie acquisitions now stand at 58.7 bps. It is likely that g-fees will remain in this range for at least several quarters. New FHFA director Mel Watt suspended Ed DeMarco's proposed increase in g-fees, in order to have time to study the issue. In addition, Watt stated that once an announcement is made, implementation would occur in no fewer than 120 days. Fannie Mae single-family average charged g- fee on new acquisitions Fannie Mae single-family effective g-fee rate Freddie Mac management and g-fee rate Sources: Fannie Mae, Freddie Mae and Urban Institute Note: Freddie only reports the effective g-fee on the entire book of business. Basis points GSE Risk-Sharing Transactions Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 Date Agency Deal Class Amount Tranche Credit Initial Rating Thickness Enhancement Spread A-H $21,906,830,673 97% 3% NR - Structured M-1, M-1H* $304,888, % 1.65% NR 340 Agency Credit July 24, Freddie M-2, M-2H* $304,888, % 0.30% NR 715 Risk (STACR) 2013 Mac B-H $67,753, % 0% NR - Debt Notes, Series 2013-DN1 Total Reference $22,584,361, % Pool Size A-H $25,953,684,593 97% 3% NR - Connecticut M-1, M-1H* $361,211, % 1.65% BBB-sf 200 October 24, Fannie Avenue M-2, M-2H* $361,211, % 0.30% NR Mae Securities (CAS) B-H $80,269, % 0% NR C01 Total Reference Pool Size $26,756,375, % November 12, 2013 January 14, 2014 Freddie Mac Fannie Mae STACR Debt Notes, Series 2013-DN2 Connecticut Avenue Securities, Series 2014-C01 A-H $34,267,497,133 97% 3% NR - M-1, M-1H* $370,936, % 1.95% BBB-sf 145 M-2, M-2H* $582,900, % 0.30% NR 425 B-H $105,981, % 0% NR - Total Reference Pool Size $35,327,316, % A-H $28,429,460 97% 3% NR - M-1, M-1H $395,667, % 1.65% BBB-sf 160 M-1 $375,000, % M-1H $20,667, % M-2, M-2H $395,667, % 0.30% NR 440 M-2 $375,000, % M-2H $20,667, % B-H $87,926, % 0% NR - Total Reference Pool Size $29,308,720, % 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 Freddie Mac and Fannie Mae. * In this transaction, only the M-1 and M-2 were sold; the M-1H and M-2H were retained by the GSE

21 OVERVIEW SERIOUS GSES UNDER CONSERVATORSHIP DELINQUENCY RATES AT THE SERIOUS GSEs DELINQUENCY RATES Serious delinquency rates at the GSEs continue to decline as the legacy portfolio is resolved and the pristine, post-2009 book of business exhibits very low default rates. As of November, 2.44 percent of the Fannie portfolio and 2.43 percent of the Freddie portfolio were seriously delinquent, down from 3.30 percent and 3.25 percent a year earlier, respectively. Serious Delinquency Rates Fannie Mae 16% 14% Single-family: Noncredit enhanced Single-family: Credit enhanced Single-family: Total Percentage of total loans 12% 10% 8% 6% 4% 2% 0% 4.87% 2.44% 2.04% Sources: Fannie Mae and Urban Institute. May-05 Nov-05 May-06 Nov-06 May-07 Nov-07 May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11 Nov-11 May-12 Nov-12 May-13 Nov-13 Serious Delinquency Rates Freddie Mac Single-family: Noncredit enhanced Single-family: Credit enhanced Single-family: Total Percentage of total loans 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Sources: Freddie Mac and Urban Institute. May-05 Oct-05 Mar-06 Aug-06 Jan-07 Jun-07 Nov-07 Apr-08 Sep-08 Feb-09 Jul-09 Dec-09 May-10 Oct-10 Mar-11 Aug-11 Jan-12 Jun-12 Nov-12 Apr-13 Sep % 2.43% 2.07% 21

22 GSES UNDER CONSERVATORSHIP SERIOUS DELINQUENCY RATES Serious delinquencies for FHA and GSE single-family loans continue to decline with the housing recovery, but remain quite high relative to FHA delinquencies are declining from a much higher relative starting point. GSE multifamily delinquencies are also declining, although they never reached problematic levels even at the height of the crisis. Serious Delinquency Rates Single-Family Loans Percentage of total loans 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% FHA Fannie Mae Freddie Mac 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 Sources: Fannie Mae, Freddie Mac, MBA Delinquency Survey and Urban Institute. Note: Serious delinquency defined as 90 days or more past due or in the foreclosure process. Serious Delinquency Rates Multifamily GSE Loans 7.24% 2.58% 0.9% Fannie Mae Freddie Mac 0.8% Percentage of total loans 0.7% 0.6% 0.5% 0.4% 0.3% 0.2% 0.1% 0.0% 0.11% 0.05% May-05 Nov-05 May-06 Nov-06 May-07 Nov-07 May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11 Nov-11 May-12 Nov-12 May-13 Nov-13 Sources: Fannie Mae, Freddie Mac and Urban Institute. Note: Serious delinquency defined as 60 days or more past due. 22

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-the-money), and (2) a considerable number of borrowers who have already refinanced. There have been over 18 million refinances of GSE loans since Q2 2009, nearly 3 million of these through HARP. As a result, the pool of eligible loans remaining is much lower. Total HARP Refinance Volume 350 HARP Refinance Volume - Fannie HARP Refinance Volume - Freddie Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 Thousands 2Q13 3Q13 Sources: FHFA Refinance Report and Urban Institute. HARP Refinances October 2013 Year-to-date 2013 Inception to date Total refinances 191,639 3,767,512 18,557,852 4,750,530 3,229,066 3,604,640 Total HARP refinances 46, ,161 2,989,204 1,074, , ,647 Share LTV 66.1% 59.2% 69.8% 56.4% 85.0% 93.4% Share LTV 19.7% 21.4% 17.2% 22.4% 15.0% 6.6% Share >125 LTV 14.2% 19.4% 13.0% 21.2% 0% 0% All other streamlined refinances 37, ,171 3,187, , , ,477 Sources: FHFA Refinance Report and Urban Institute. 23

24 OVERVIEW GSES UNDER LOANS: CONSERVATORSHIP DISTRIBUTION OF POTENTIAL GSE LOANS: REFINANCES POTENTIAL REFINANCES To qualify for HARP, a loan must be originated before June 2009, have a marked-to-market loan-to-value (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 1,341,492 eligible loans, but 37 percent are out-of-the-money because the closing cost would exceed the long-term savings, leaving 846,677 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 7,509,275 loans in this category, 5,235,549 are in-the-money. More than half the GSE book of business was originated after the cutoff date. Of these loans, 2,384,908 meet the other HARP criteria, but 90 percent are out-of-the-money, leaving only 249,932 loans that would be potential HARP candidates, were it not for the cut-off date. Were the cut-off date moved forward one year, 113,998 of the 249,932 borrowers would qualify. If the cut-off date were moved forward two years, 200,632 of the 249,932 borrowers would qualify. Total loan count 24,808,920 Loans that do not meet pay history requirement 1,956,151 Loans that meet pay history requirement: 22,852,769 Pre-June 2009 origination 8,850,767 Post-June 2009 origination 14,002,002 Loans Meeting HARP Pay History Requirements Pre-June 2009 LTV category In-the-money Out-of-the-money Total 80 5,235,549 2,273,726 7,509,275 >80 846, ,815 1,341,492 Total 6,082,226 2,768,541 8,850,767 Post-June 2009 LTV category In-the-money Out-of-the-money Total ,432 10,746,662 11,617,094 >80 249,932 2,134,975 2,384,908 Total 1,120,365 12,881,637 14,002,002 Sources: CoreLogic prime servicing data as of November Note: Figures are scaled up from source data by a factor of 1/.65 to account for data coverage. Striped box indicates HARP-eligible loans that are in-the-money. 24

25 MODIFICATION ACTIVITY HAMP ACTIVITY New trial mods have tapered off as new defaults have declined. Modification success rates, however, are improving, so the number of new permanent mods started remains fairly stable. During 2013, new permanent mods started has ranged between 11,913 and 19,318 per month, averaging 14,683. The last data available (November) is slightly below average at 13,000 new permanent modifications. We would expect new permanent mods to begin to taper off in the months ahead, due to sharp declines in new defaults. New HAMP Modifications Number of mods (thousands) New trial mods started New permanent mods started New active permanent mods May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov Sources: U.S. Treasury Making Home Affordable and Urban Institute. Cumulative HAMP Modifications 2.5 All trials mods started All permanent mods started Active permanent mods Number of mods (millions) May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Sources: U.S. Treasury Making Home Affordable and Urban Institute. 25

26 OVERVIEW MODIFICATION ACTIVITY BY TYPE OF ACTION AND MODIFICATION BY BEARER BY OF TYPE RISK OF ACTION AND BEARER OF RISK The share of principal reduction modifications peaked at 20 percent in December 2012 and has dropped in 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. Principal reduction is most likely to be done on private investor loans, followed by portfolio loans. The GSEs and FHA/VA do not allow this type of modification. Changes in Loan Terms for Modifications 9/30/12 12/31/12 03/31/13 6/30/13 9/30/13 One quarter % change One year % change Capitalization Rate Reduction Rate Freeze Term Extension Principal Reduction Principal Deferral Not Reported* Sources: OCC Mortgage Metrics Report for the Third Quarter of 2013 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 Rate reduction Rate freeze Term extension Principal reduction Principal deferral Not reported* Sources: OCC Mortgage Metrics Report for the Third Quarter of 2013 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). 26

27 MODIFICATION ACTIVITY MODIFICATIONS AND LIQUIDATIONS Total modifications (HAMP and proprietary) are now roughly equal to total liquidations. Hope Now reports show 6,869,402 borrowers have received a modification since Q3 2007, compared with 6,869,676 liquidations in the same period. Foreclosure sales dropped 19.8 percent from October to November, to 41,295. Modifications fell by 11.3 percent, to 44,320. Both declines are reflective of the housing market continuing to gain steam. Loan Modifications and Liquidations 1,600 1,400 Number of loans (thousands) 1,200 1, (Q3-Q4) YTD 844 HAMP permanent mods Proprietary mods completed Total liquidations Sources: Hope Now Reports and Urban Institute. Note: Total liquidations includes both foreclosure sales and short sales. Year-to-date figures are through November Cumulative Modifications and Liquidations 8 Number of loans (millions) (Q3-Q4) YTD 6.9 HAMP mods Proprietary mods Total liquidations Sources: Hope Now Reports and Urban Institute. Note: Total liquidations includes both foreclosure sales and short sales. Year-to-date figures are through November

28 MODIFICATION ACTIVITY MODIFICATION REDEFAULT RATES BY BEARER OF THE RISK Redefault rates have come down across each sector, especially on private-label modifications. Governmentguaranteed mortgages have much higher redefault rates than other product types. Redefault Rate 12 Months after Modification Fannie Mae Freddie Mac Government-guaranteed Private Portfolio Loans Overall Redefault rate 80% 70% 60% 50% 40% 30% 20% 10% 0% Year of modification Sources: OCC Mortgage Metrics Report for the Third Quarter of 2013 and Urban Institute. Redefault Rate 24 Months after Modification 80% 70% 60% Fannie Mae Freddie Mac Government-guaranteed Private Portfolio loans Overall Redefault rate 50% 40% 30% 20% 10% 0% Year of modification Sources: OCC Mortgage Metrics Report for the Third Quarter of 2013 and Urban Institute. 28

29 AGENCY ISSUANCE AGENCY GROSS AND NET ISSUANCE While newly issued agency securities (agency gross issuance) have been robust in 2013, much of the issuance has been driven by refinancing. As that activity falls off with rising interest rates, we expect the volume of new issuance to fall off as well. 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 during the crisis. Agency Gross Issuance Agency Net Issuance Issuance Year GSEs Ginnie Mae Total Issuance Year GSE Ginnie Mae Total 2000 $ $ $ $ $ $1, $1, $ $1, $1, $ $2, $ $ $ $ $81.36 $ $ $76.67 $ $1, $94.89 $1, $ $ $1, $1, $ $1, $1, $ $1, $ $ $1, $1, $ $1, $1, $ $1, $159.8 $29.3 $ $ $9.9 $ $ $51.2 $ $ $77.6 $ $83.3 -$40.1 $ $ $42.2 $ $313.6 $0.3 $ $514.7 $30.9 $ $314.3 $196.4 $ $249.5 $257.4 $ $305.5 $ $ $133.4 $149.4 $ $46.5 $118.4 $ $66.5 $85.8 $152.3 Sources: embs and Urban Institute. Note: Dollar amounts are in billions. Sources: embs and Urban Institute. Note: Dollar amounts are in billions. 29

30 OVERVIEW OVERVIEW AGENCY ISSUANCE GROSS AND NET ISSUANCE AGENCY BY GROSS ISSUANCE AND FED PURCHASES MONTH 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% of total agency issuance in 2010, and that share declined to 25% in It should begin to rise again as we move from a refinance market to a purchase market. December showed a Ginnie Mae share of 26.6%. $ billions Ginnie Mae Fannie Mae 50 Freddie Mac Sources: embs and Urban Institute. Fed Absorption of Agency Gross Issuance 0 The Fed absorbed nearly 50 percent of gross issuance in Fed tapering steps began in January 2014 with monthly MBS purchases trimmed to $35 billion, a reduction of $5 billion. More tapering is expected if the economy continues to grow. The effect will start to show when 2014 data becomes available. 250 Gross issuance Fed purchases Dec-00 Jun-01 Dec-01 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Dec-00 Jun-01 Dec-01 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 $ billions Sources: embs, Federal Reserve Bank of New York and Urban Institute. 30

31 AGENCY ISSUANCE MORTGAGE INSURANCE ACTIVITY MI Activity $180 Private mortgage insurers lost market share to FHA and VA in the crisis. With the recovery and higher FHA insurance premiums, the private MI share is increasing, albeit slowly. In 3Q13, private insurers had 39 percent of the market, up from 21 percent in 1Q11 but significantly down from nearly 80 percent from VA $ billions $160 $140 $120 $100 $80 $60 $40 $20 $33 $58 $59 FHA $0 Total private primary MI Sources: Inside Mortgage Finance and Urban Institute. 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 MI Market Share 100% Total private primary MI FHA VA 90% 80% 70% 60% 50% 40% 30% 20% 10% 36.0% 41.2% 22.7% 0% Sources: Inside Mortgage Finance and Urban Institute. Q1-Q3 31

32 AGENCY ISSUANCE MORTGAGE INSURANCE ACTIVITY The table below charts the history of FHA mortgage insurance premiums since Note that the most recent change increased the annual premium by 10 bps, from 1.25 to 1.35 percent, and kept the upfront premium at 1.75 percent for mortgages with balances less than $625,500. Annual premiums have more than doubled since 2008, as the FHA has worked to shore up its finances. 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/ /14/2008-9/30/2008* /1/2008-4/4/ /5/ /3/ /4/2010-4/17/ /18/2011-4/8/ /9/2012-6/10/ /11/2012-3/31/2013 a /1/ present b 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 the FHA used a risk based FICO/LTV matrix for MI. This table assumes the average FICO for 2008 purchase originations, ~630. 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. 32

33 SPECIAL FEATURE: LOAN LEVEL CREDIT DATA FROM THE GSEs FANNIE MAE COMPOSITION Since 2008, the composition of loans purchased by Fannie Mae has shifted towards borrowers with higher FICO scores. For example, 70.1 percent of loans originated in 2011 and 2012 were for borrowers with FICO scores above 750, compared to 36.3 percent of borrowers in 2007 and 32.4 percent from Balance on 30-year, Fixed-rate, Full-doc, Amortizing Loans Only Origination Year Origination FICO LTV to to 90 >90 Total % 16.9% 5.0% 5.1% 37.2% 700 to % 14.4% 3.4% 3.1% 30.5% > % 14.1% 2.3% 1.9% 32.4% Total 34.0% 45.4% 10.7% 10.0% 100.0% % 17.4% 3.8% 2.6% 37.5% 700 to % 13.5% 2.1% 1.3% 27.0% > % 16.6% 1.8% 1.2% 35.5% Total 39.6% 47.5% 7.7% 5.2% 100.0% % 18.2% 4.0% 2.5% 38.4% 700 to % 13.8% 2.2% 1.2% 26.2% > % 17.8% 2.1% 1.2% 35.3% Total 37.1% 49.8% 8.2% 4.9% 100.0% % 17.0% 5.9% 3.6% 38.2% 700 to % 12.8% 3.0% 1.7% 25.6% > % 17.8% 2.9% 1.8% 36.3% Total 33.4% 47.6% 11.9% 7.0% 100.0% % 8.2% 3.4% 2.4% 22.2% 700 to % 12.8% 4.4% 2.8% 28.3% > % 23.7% 5.2% 3.0% 49.4% Total 34.1% 44.7% 13.0% 8.2% 100.0% % 3.2% 0.3% 0.2% 7.7% 700 to % 11.9% 1.8% 0.9% 23.7% > % 32.2% 3.8% 1.5% 68.6% Total 44.1% 47.4% 5.9% 2.7% 100.0% % 3.6% 0.5% 0.7% 7.6% 700 to % 10.6% 2.3% 2.5% 22.3% > % 32.2% 5.6% 4.8% 70.1% Total 37.2% 46.4% 8.5% 8.0% 100.0% Total 37.0% 46.3% 9.4% 7.5% 100.0% Sources: Fannie Mae and Urban Institute calculation. Note: Fannie Mae loan level credit data includes loans originated from Q to Q The percentages are weighted by origination balance. 33