HOUSING FINANCE POLICY CENTER HOUSING FINANCE AT A GLANCE A MONTHLY CHARTBOOK November 2013 1
INTRODUCTION In the tradition of the Urban Institute, 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. The November edition of At A Glance draws on the rich institutional resources of the center, and its unique capabilities in analyzing complex data. The center is committed to making key metrics widely available for policymakers, academics, journalists, and others interested in the government's role in mortgage markets and broader trends in housing finance. At A Glance s development will mirror HFPC s dynamic, evolving research agenda. More than a one-stop reference, At A Glance underscores the connections between the housing market and public policy. This month we added detailed, succinct data for the three GSE risk-sharing transactions to date, as well as historical information on FHA mortgage insurance premiums. A new quarterly feature, GSE Composition and Default Rates, draws from newly released Fannie Mae and Freddie Mac public loan-level databases. We translate this information to illustrate composition and default rates. Our vision is that this and other HFPC publications will serve as the basis for thoughtful, well-crafted housing finance policies that meet the nation s diverse housing needs. 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 II Taz George Research Assistant Maia Woluchem Research Assistant Alison Rincon Special Assistant to the Director INSIDE THIS ISSUE New non-agency securitization drops to near zero in October (page 8) Key measures of credit availability by MSA; Bay Area FICO scores average over 750 (page 11) GSE portfolio wind-down continues; Fannie g-fees rise but Freddie's drops in Q3 (pages 13-15) Mod activity down in September; total liquidations below 2012 pace (page 22) Private MI share grows relative to FHA/VA (page 26) Historical information on FHA MI Premiums (page 27) Fannie and Freddie composition and default rates from newly released data sets (pages 29-32) 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
CONTENTS Overview Market Size Overview Value of the US Residential Housing Market 5 Size of the US Residential Mortgage Market 5 Private-Label Securities by Product Type 6 Agency Mortgage-Backed Securities 6 Origination Volume and Composition First Lien Origination Volume 7 First Lien Origination Share 7 Securitization Volume and Composition Agency/Non-Agency Share of Residential MBS Issuance 8 Non-Agency MBS Issuance 8 Non-Agency Securitization 2.0 8 Agency Activity: Volumes and Purchase/Refi Composition At-Issuance Balance 9 Percent Refi at Issuance 9 Credit Availability for Purchase Loans Borrower FICO Score at Origination 10 Combined LTV at Origination 10 Origination FICO and LTV by MSA 11 Housing Affordability National Housing Affordability Over Time 12 Affordability Adjusted for MSA-Level DTI 12 GSEs under Conservatorship GSE Portfolio Wind-Down: Fannie Mae Fannie Mae Mortgage-Related Investment Portfolio Over Time (Volume) 13 Fannie Mae Mortgage-Related Investment Portfolio Over Time (Share) 13 GSE Portfolio Wind-Down: Freddie Mac Freddie Mac Mortgage-Related Investment Portfolio Over Time (Volume) 14 Freddie Mac Mortgage-Related Investment Portfolio Over Time (Share) 14 Effective Guarantee Fees Effective Guarantee Fees 15 GSE Risk-Sharing Transactions 15 Serious Delinquency Rates Serious Delinquency Rates Fannie Mae 16 Serious Delinquency Rates Freddie Mac 16 Serious Delinquency Rates Single-Family Loans 17 Serious Delinquency Rates Multifamily GSE Loans 17 Refinance Activity Total HARP Refinance Volume 18 HARP Refinances 18 3
CONTENTS GSE Loans: Potential Refinances Loans Meeting HARP Pay History Requirements 19 Modification Activity HAMP Activity New HAMP Modifications 20 Cumulative HAMP Modifications 20 Modification by Type of Action and Bearer of Risk Changes in Loan Terms for Modifications 21 Type of Modification Action by Investor and Product Type 21 Modifications and Liquidations Loan Modifications and Liquidations 22 Cumulative Modifications and Liquidations 22 Modification Redefault Rates by Bearer of the Risk Redefault Rate 12 Months after Modification 23 Redefault Rate 24 Months after Modification 23 Agency Issuance Agency Gross and Net Issuance Agency Gross Issuance 24 Agency Net Issuance 24 Agency Gross Issuance and Fed Purchases Monthly Gross Issuance 25 Fed Absorption of Agency Gross Issuance 25 Mortgage Insurance Activity MI Activity 26 MI Market Share 26 FHA MI Premiums for Typical Purchase Loan 27 Quarterly Feature: Loan Level Credit Data from the GSEs Fannie Mae Balance 28 Fannie Mae Default Rate 29 Freddie Mac Balance 30 Freddie Mac Default Rate 31 Fannie Mae Cumulative Default Rate by Vintage Year 32 Freddie Mac Cumulative Default Rate by Vintage Year 32 Related HFPC Work Publications and Events 33-34 4
OVERVIEW MARKET SIZE OVERVIEW Home values continue to improve, increasing the total value of the US residential housing market. However, the reliance on mortgage financing is decreasing because of a sizable share of cash purchases. According to the 2013 Q2 Fed Flow of Funds report, the total size of the mortgage market stands at $9.8 trillion. Agency mortgagebacked securities (MBS) make up 56 percent of the total; private-label securities make up 8.6 percent; and unsecuritized first liens at commercial banks, savings institutions, and credit unions make up 22.4 percent $25,000 Value of the US Residential Housing Market as of Q2 2013 Size of the US Residential Mortgage Market as of Q2 2013 Unsecuritized first liens at commercial banks, savings institutions, credit unions Equity, $9,772 $20,000 $15,000 Equity, $9,772 Fannie and Freddie loans in portfolio Agency MBS Private-label securities Second liens $ billions $10,000 $10,000 $2,208 $5,000 Debt, household mortgages, $9,833 $7,500 $5,000 $537 $5,508 $2,500 $0 Sources: Federal Reserve Flow of Funds and Urban Institute. $0 $849 $731 Sources: Federal Reserve Flow of Funds, Inside Mortgage Finance, Fannie Mae, Freddie Mac, and Urban Institute. 5
OVERVIEW MARKET SIZE OVERVIEW As of September 2013, debt in the private-label securitization market is split among prime (20.4 percent),alt-a (44.2 percent), and subprime (35.4 percent) loans. The agency market is 47.6 percent Fannie Mae, 28 percent Freddie Mac, and 24.4 percent Ginnie Mae. 100% 90% 80% Private-Label Securities by Product Type as of September 2013; dollars in billions Prime, $168.9 70% 60% 50% Alt-A, $366.3 40% 30% 20% 10% Subprime, $293.6 0% Sources: CoreLogic and Urban Institute. 100% Agency Mortgage-Backed Securities as of Q2 2013; dollars in billions 90% 80% 70% Fannie Mae, $2,620 60% 50% 40% 30% 20% 10% Freddie Mac, $1,545 Ginnie Mae, $1,343 0% Sources: Inside Mortgage Finance and Urban Institute. 6
OVERVIEW OVERVIEW ORIGINATION VOLUME AND COMPOSITION First Lien Origination Volume First lien originations through the first three quarters of 2013 stand at $1.59 trillion. 2013 originations will likely fall just short of 2012's $2.12 trillion due to the impact of higher rates. Note that the 2012 numbers were revised upward about $250 billion from last month's edition based on newly released HMDA figures. Year-todate private label originations, at $12.2 billion, while still very small, are already double last year's amount. $4.0 $3.5 $ trillions $3.0 $2.5 $2.0 $1.5 $1.0 Bank portfolio PLS total securitization FHA/VA securitization GSE securitization $0.5 $0.0 2001 2002 2003 2004 2005 2006 First Lien Origination Share 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2001 2002 2003 2004 2005 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 2013 (Q1-3) 2013 (Q1-3) Sources: Inside Mortgage Finance and Urban Institute. The GSE share of first lien originations, at 61.7 percent, is down slightly from last quarter but remains elevated compared to historic levels. FHA/VA originations remain strong at 18.9 percent, slightly ahead of the 2012 share of 17.6 percent. The PLS share, still less than 1 percent, is barely creeping back, and the share of bank portfolio originations has declined slightly from 2012, now at 16.2 percent. Bank portfolio PLS total securitization FHA/VA securitization GSE securitization Sources: Inside Mortgage Finance and Urban Institute. 7
OVERVIEW SECURITIZATION VOLUME AND COMPOSITION Agency/Non-Agency Share of Residential MBS Issuance Non-agency single-family MBS issuance has ticked up but remains less than 2 percent of the market for 2013 through October, and the share is even lower excluding Re-REMICS. Over this period, total non-agency issuance was $25.7 billion, compared to $13.2 billion for all of 2012. This represents significant progress, but still pales in comparison to nonagency numbers in the pre-bubble years such as 2002, when issuance reached $400 billion. The pace of new securitization slowed dramatically in October as pricing became increasingly unfavorable. Several deals were pulled during the course of the month. 100% Sources: Inside Mortgage Finance and Urban Institute. 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Non-Agency MBS Issuance 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 (through Oct.) Agency share Non-Agency share Non-Agency Securitization 2.0 98% 2% $ billions $1,200 $1,000 $800 $600 $400 $200 $0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 YTD (Q1-Q3) Prime Subprime Alt A All other Sources: Inside Mortgage Finance and Urban Institute. $ billions $12 $10 $8 $6 $4 $2 $0 Aug-10 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 Sources: Inside Mortgage Finance and Urban Institute. Note: Monthly figures equal total non-agency MBS issuance minus Re-REMIC issuance. 8
OVERVIEW AGENCY ACTIVITY: VOLUMES AND PURCHASE/REFI COMPOSITION Year-to-date agency issuance totaled $1.4 trillion in October. In October, refinances were 50-55 percent of the GSEs business, down from over 80 percent in January a decline reflects rising interest rates. The Ginnie Mae market has always been more purchase-driven, with refinance volume down to 24.2 percent in October from 56 percent in January. At-Issuance Balance $2,500 Fannie Mae Freddie Mac Ginnie Mae $2,000 $ millions $1,500 $1,000 $348.3 $384.2 $500 $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 YTD Sources: embs and Urban Institute. Note: Year to date as of October 2013. $674.5 Percent Refi at Issuance 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Fannie Mae Freddie Mac Ginnie Mae Oct-03 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Sources: embs and Urban Institute. Note: Based on at-issuance balance. 9
OVERVIEW 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 662 as of September 2013. Prior to the housing crisis, this threshold held steady in the low 600s. LTV levels at origination remain relatively high, which reflects the large number of FHA purchase originations. Borrower FICO Score at Origination 850 90th percentile Mean 10th percentile FICO Score 800 750 700 650 600 550 500 Sep-00 Mar-01 Sep-01 Mar-02 Sep-02 Mar-03 Sep-03 Mar-04 Sep-04 Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 800 738 661 Sources: CoreLogic Prime Servicing as of September 2013 and Urban Institute. Note: Purchase-only loans. Combined LTV at Origination 110 100 100.9 90 80 85.3 90th percentile Mean 10th percentile LTV 70 60 50 40 66.7 30 Sep-00 Mar-01 Sep-01 Mar-02 Sep-02 Mar-03 Sep-03 Mar-04 Sep-04 Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Sources: CoreLogic Prime Servicing as of September 2013 and Urban Institute. Note: Purchase-only loans. 10
OVERVIEW OVERVIEW CREDIT AVAILABILITY FOR PURCHASE LOANS Across all MSAs, credit has been tight for all borrowers except for those with the highest FICO scores. Still, there are variations across MSAs, though FICOs are high overall. Borrowers in San Jose-Sunnyvale-Santa Clara, CA have origination FICOs near 770, while borrowers in San Antonio-New Braunfels, TX have FICOs near 720. Note that across MSAs, lower FICO scores go hand in hand with high LTVs at origination, as these MSAs rely heavily on FHA/VA financing. Origination FICO and LTV by MSA 780 Origination FICO Origination LTV 100 770 95 760 90 Origination FICO 750 740 730 85 80 75 Origination LTV 720 70 710 65 700 SAN JOSE-SUNNYVALE-SANTA CLARA, CA SAN FRANCISCO-SAN MATEO-REDWOOD CITY, CA OAKLAND-FREMONT-HAYWARD, CA NEW YORK-WHITE PLAINS-WAYNE, NY-NJ LOS ANGELES-LONG BEACH-GLENDALE, CA SEATTLE-BELLEVUE-EVERETT, WA PORTLAND-VANCOUVER-HILLSBORO, OR-WA SAN DIEGO-CARLSBAD-SAN MARCOS, CA NASSAU-SUFFOLK, NY NEWARK-UNION, NJ-PA WASHINGTON-ARLINGTON-ALEXANDRIA, DC-VA MINNEAPOLIS-ST. PAUL-BLOOMINGTON, MN DENVER-AURORA-BROOMFIELD, CO BOSTON-QUINCY, MA BALTIMORE-TOWSON, MD CHICAGO-JOLIET-NAPERVILLE, IL SACRAMENTO--ARDEN-ARCADE--ROSEVILLE, CA PHILADELPHIA, PA ST. LOUIS, MO-IL CHARLOTTE-GASTONIA-ROCK HILL, NC-SC ORLANDO-KISSIMMEE-SANFORD, FL RIVERSIDE-SAN BERNARDINO-ONTARIO, CA DALLAS-PLANO-IRVING, TX HOUSTON-SUGAR LAND-BAYTOWN, TX TAMPA-ST. PETERSBURG-CLEARWATER, FL PITTSBURGH, PA MIAMI-MIAMI BEACH-KENDALL, FL ATLANTA-SANDY SPRINGS-MARIETTA, GA KANSAS CITY, MO-KS LAS VEGAS-PARADISE, NV CINCINNATI-MIDDLETOWN, OH-KY-IN PHOENIX-MESA-GLENDALE, AZ COLUMBUS, OH CLEVELAND-ELYRIA-MENTOR, OH DETROIT-LIVONIA-DEARBORN, MI FORT WORTH-ARLINGTON, TX SAN ANTONIO-NEW BRAUNFELS, TX 60 Sources: CoreLogic Prime Servicing as of September 2013 and Urban Institute. Note: Purchase-only loans. 11
Ratio OVERVIEW HOUSING AFFORDABILITY Look for a forthcoming issue brief describing our efforts to develop more local and accurate estimates of affordability that unmask variations in housing affordability across regions and MSAs. For more, see Lan Shi s recent article on housing affordability, The Impact of Mortgage Rate Increases on Housing Affordability. National Housing Affordability Over Time 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 Sources: CoreLogic, US Census, Freddie Mac, and Urban Institute. $300,000 $280,000 $260,000 $240,000 $220,000 $200,000 $180,000 $160,000 $140,000 $120,000 Affordability Adjusted for MSA-Level DTI 1.4 1.3 1.2 1.1 1 0.9 0.8 0.7 NEW YORK-WHITE PLAINS-WAYNE, NY-NJ LOS ANGELES-LONG BEACH-GLENDALE, CA WASHINGTON-ARLINGTON-ALEXANDRIA, DC-VA BOSTON-QUINCY, MA SAN JOSE-SUNNYVALE-SANTA CLARA, CA NASSAU-SUFFOLK, NY BALTIMORE-TOWSON, MD PORTLAND-VANCOUVER-HILLSBORO, OR-WA PHILADELPHIA, PA SEATTLE-BELLEVUE-EVERETT, WA DALLAS-PLANO-IRVING, TX SAN DIEGO-CARLSBAD-SAN MARCOS, CA PHOENIX-MESA-GLENDALE, AZ MIAMI-MIAMI BEACH-KENDALL, FL SAN FRANCISCO-SAN MATEO-REDWOOD CITY, CA ATLANTA-SANDY SPRINGS-MARIETTA, GA Credit bubble Sep-00 Mar-01 Sep-01 Mar-02 Sep-02 Mar-03 Sep-03 Mar-04 Sep-04 Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 RIVERSIDE-SAN BERNARDINO-ONTARIO, CA MINNEAPOLIS-ST. PAUL-BLOOMINGTON, MN Sources: CoreLogic, US Census, Freddie Mac, and UI calculations based on NAR methodology. Note: Affordability compares home prices in September 2013 to that prevailing in 2000-2003. A ratio above 1.0 indicates the median home is less expensive relative to median income than was the case in 2000-2003. CHARLOTTE-GASTONIA-ROCK HILL, NC-SC ORLANDO-KISSIMMEE-SANFORD, FL HOUSTON-SUGAR LAND-BAYTOWN, TX SACRAMENTO--ARDEN-ARCADE--ROSEVILLE, CA FORT WORTH-ARLINGTON, TX SAN ANTONIO-NEW BRAUNFELS, TX OAKLAND-FREMONT-HAYWARD, CA DENVER-AURORA-BROOMFIELD, CO ST. LOUIS, MO-IL PITTSBURGH, PA NEWARK-UNION, NJ-PA DETROIT-LIVONIA-DEARBORN, MI CHICAGO-JOLIET-NAPERVILLE, IL TAMPA-ST. PETERSBURG-CLEARWATER, FL CINCINNATI-MIDDLETOWN, OH-KY-IN CLEVELAND-ELYRIA-MENTOR, OH KANSAS CITY, MO-KS COLUMBUS, OH LAS VEGAS-PARADISE, NV 12
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 28.5 percent of the Fannie portfolio and 41 percent of the Freddie portfolio. Both GSEs will be well under their portfolio cap of $552.5 billion for year-end 2013. Fannie now stands at $516.3 billion and Freddie at $497.8 billion. Fannie Mae Mortgage-Related Investment Portfolio Composition Over Time (Volume) Current size: $516.3 billion Current cap: $552.5 billion Shrinkage year to date: 16.8% Mortgage loans Non-agency MBS Non-FNMA agency MBS Fannie MBS in portfolio $ billions Sources: Fannie Mae and Urban Institute. 900 800 700 600 500 400 300 200 100 0 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Fannie Mae Mortgage-Related Investment Portfolio Composition Over Time (Share) Less liquid assets (mortgage loans and nonagency MBS) = 71.5% 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% Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 13 Sep-13
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: $497.8 billion Current cap: $552.5 billion Shrinkage year to date: 9.5% Mortgage loans Non-agency MBS Non-FHLMC agency MBS FHLMC MBS in portfolio $ billions Sources: Freddie Mac and Urban Institute. 1,000 900 800 700 600 500 400 300 200 100 0 Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Freddie Mac Mortgage-Related Investment Portfolio Composition Over Time (Share) Less liquid assets (mortgage loans and nonagency MBS) = 59% 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% Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 14
GSES UNDER CONSERVATORSHIP EFFECTIVE GUARANTEE FEES Effective Guarantee Fees In Q3, effective g-fees on new Fannie acquisitions rose to 58.7 bps. Freddie only reports the effective g-fee on the entire book of business. 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 Basis points Sources: Fannie Mae, Freddie Mae and Urban Institute. GSE Risk-Sharing Transactions 60 50 40 30 20 10 0 1Q09 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 n/a M-1, M-1H $304,888,881 1.35% 1.65% NR 340 M-1 $250,000,000 1.26% Structured M-1H $54,888,881 0.09% Agency Credit July 24, Freddie M-2, M-2H $304,888,881 1.35% 0.30% NR 715 Risk (STACR) 2013 Mac M-2 $250,000,000 1.26% Debt Notes, Series 2013-DN1 M-2H $54,888,881 0.09% B-H $67,753,085 0.30% 0% NR n/a Total Reference Pool Size $22,584,361,520 100% A-H $25,953,684,593 97% 3% NR n/a M-1, M-1H $361,211,074 1.35% 1.65% BBB-sf 200 M-1 $337,500,000 TK Connecticut M-1H $23,711,074 TK October 24, Fannie Avenue M-2, M-2H $361,211,074 1.35% 0.30% NR 525 2013 Mae Securities (CAS) M-2 $337,500,000 TK 2013-C01 M-2H $23,711,074 TK B-H $80,269,128 0.30% 0% - n/a Total Reference Pool Size $26,756,375,869 100% November 12, 2013 Freddie Mac STACR Debt Notes, Series 2013-DN2 A-H $34,267,497,133 97% 3% NR n/a M-1, M-1H $370,936,825 1.05% 1.95% BBB-sf 145 M-1 $245,000,000 0.69% M-1H $125,936,825 0.36% M-2, M-2H $582,900,724 1.65% 0.30% NR 425 M-2 $385,000,000 1.09% M-2H $197,900,724 0.56% B-H $105,981,950 0.30% 0% NR n/as Total Reference Pool Size $35,327,316,632 100% 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. 15 58.7 38 29.8
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 September, 2.55 percent of the Fannie portfolio and 2.58 percent of the Freddie portfolio are seriously delinquent, down from 3.41 percent and 3.37 percent a year earlier, respectively. Serious Delinquency Rates Fannie Mae 16% Single-family: Credit enhanced Single-family: Noncredit enhanced Single-family: Total Percentage of total loans 14% 12% 10% 8% 6% 4% 2% 0% Jan-03 May-03 Sep-03 Jan-04 May-04 Sep-04 Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 5.15% 2.55% 2.14% Sources: Fannie Mae and Urban Institute. Serious Delinquency Rates Freddie Mac Single-family: Credit enhanced Single-family: Noncredit enhanced Single-family: Total Percentage of total loans 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Jan-04 May-04 Sep-04 Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 5.20% 2.58% 2.20% Sources: Freddie Mac and Urban Institute. 16
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 2005-2007. FHA loans are declining from a much higher relative starting point. GSE multifamily delinquencies are also declining. Serious Delinquency Rates Single-Family Loans 10% 9% FHA Fannie Mae Freddie Mac Percentage of total loans 8% 7% 6% 5% 4% 3% 2% 1% 0% 7.24% 2.58% 2.58% 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 three months or more past due or in the foreclosure process Serious Delinquency Rates Multifamily GSE Loans Fannie Mae Freddie Mac Percentage of total loans 0.9% 0.8% 0.7% 0.6% 0.5% 0.4% 0.3% 0.2% 0.1% 0.0% 0.18% 0.05% Jan-04 May-04 Sep-04 Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Sources: Fannie Mae, Freddie Mac and Urban Institute. Note: Serious delinquency defined as 60 days or more past due. 17
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, 2.9 million of these through HARP. As a result, the pool of eligible loans remaining is much lower. Total HARP Refinance Volume 350 300 HARP refinance volume - Fannie HARP refinance volume - Freddie Thousands 250 200 150 100 50 111 169 0 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 Sources: FHFA Refinance Report and Urban Institute. HARP Refinances August 2013 Year to date 2013 Inception to date 2012 2011 2010 Total refinances 302,373 3,340,221 18,130,561 4,750,530 3,229,066 3,604,640 Total HARP refinances 68,340 721,813 2,886,856 1,074,769 400,024 431,647 Share 80 105 LTV 62.7% 58.4% 70.0% 56.4% 85.0% 93.4% Share 105 125 LTV 20.6% 21.6% 17.1% 22.4% 15.0% 6.6% Share >125 LTV 16.6% 20.0% 12.9% 21.2% 0% 0% All other streamlined refinances Sources: FHFA Refinance Report and Urban Institute. 54,310 585,155 2,908,093 729,235 785,049 763,477 18
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 1,383,651 eligible loans, but 32 percent are out-of-the-money because the closing cost would exceed the long-term savings, leaving 938,771 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 7,784,892 loans in this category, 5,964,652 are in-the-money. More than half the GSE book of business was originated after the cutoff date. Of these loans, 2,200,797 meet the other HARP criteria, but 84 percent are out-of-the-money, leaving only 357,915 loans that, if there was a change in the eligibility date, would be potential HARP candidates at current interest rate levels. Total loan count 24,901,264 Loans that don't meet pay history requirement 2,058,429 Loans that meet pay history requirement: 22,842,835 Pre-June 2009 origination 9,168,543 Post-June 2009 origination 13,674,292 Loans Meeting HARP Pay History Requirements Pre-June 2009 LTV category In-the-money Out-of-the-money Total 80 5,964,652 1,820,240 7,784,892 >80 938,771 444,880 1,383,651 Total 6,903,423 2,265,120 9,168,543 Post-June 2009 LTV category In-the-money Out-of-the-money Total 80 1,488,220 9,985,275 11,473,495 >80 357,915 1,842,882 2,200,797 Total 1,846,135 11,828,157 13,674,292 Sources: CoreLogic prime servicing data as of September 2013. 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. 19
MODIFICATION ACTIVITY HAMP ACTIVITY HAMP modification activity has tapered off as new defaults have declined. Modification success rates, however, are improving, so the number of new active permanent mods remains fairly stable. There was a noticeable spike in new permanent mods started and new active permanent mods in August, but both returned to normal levels in September, at 12,635 and 3,560, respectively. New HAMP Modifications New trial mods started New permanent mods started New active permanent mods 180 160 140 120 100 80 60 40 20 0 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 Number of mods (thousands) Jan-13 Mar-13 May-13 Jul-13 Sep-13 Sources: U.S. Treasury Making Home Affordable and Urban Institute. Cumulative HAMP Modifications All trials mods started All permanent mods started Active permanent mods 2,500 Number of mods (thousands) 2,000 1,500 1,000 500 0 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 Sources: U.S. Treasury Making Home Affordable and Urban Institute. 20
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 the past two quarters. 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 6/30/12 9/30/12 12/31/12 3/31/13 6/30/13 One quarter % change One year % change Capitalization 78.3 88.2 84.6 79.3 81.7 3.0 4.4 Rate reduction 78.7 77.1 73.3 80.1 81.0 1.1 2.8 Rate freeze 6.3 7.1 3.9 3.7 5.2 40.5-17.1 Term extension 62.1 64.9 58.9 60.3 67.7 12.2 9.0 Principal reduction 15.4 17.2 20.0 15.2 12.1-20.0-21.4 Principal deferral 19.7 19.0 20.5 18.2 20.5 12.4 3.9 Not reported a 0.7 0.4 1.1 0.6 1.4 117.4 89.2 Sources: OCC Mortgage Metrics Report for the Second Quarter of 2013 and Urban Institute. Note: This table represents percentage of total modifications in each category. a. 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 87.6 96.2 75.6 86.1 69.9 81.7 Rate reduction 66.2 85.4 96.1 73.2 79.4 81.0 Rate freeze 11.8 3.4 0.3 6.1 5.7 5.2 Term extension 82.9 90.2 95.6 19.8 47.2 67.7 Principal reduction 0.0 0.0 0.2 27.5 36.5 12.1 Principal deferral 24.8 41.0 0.2 36.8 16.6 20.5 Not reported a 2.9 0.3 0.3 1.8 1.8 1.4 Sources: OCC Mortgage Metrics Report for the Second Quarter of 2013 and Urban Institute. Note: This table represents percentage of total modifications in each category. a. Processing constraints at some servicers prevented them from reporting specific modified term(s). 21
MODIFICATION ACTIVITY MODIFICATIONS AND LIQUIDATIONS Total modifications (HAMP and proprietary) are now roughly equal to total liquidations. Hope Now reports show 6,775,092 borrowers have received a modification since Q3 2007, compared with 6,743,228 liquidations in the same period. Mods and liquidations completed in September 2013 dropped 22 percent and 13 percent from August, respectively, reflecting fewer distressed borrowers as housing markets continue to recover. Loan Modifications and Liquidations 1,600 Number of loans (thousands) 1,400 1,200 1,000 800 600 400 200 0 2007 (Q3-Q4) 132 498 2008 2009 2010 2011 2012 2013 YTD Cumulative Modifications and Liquidations 717 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. 2013 figures are through September. Number of loans (thousands) 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 2007 (Q3-Q4) 1,268 5,506 2008 2009 2010 2011 2012 2013 YTD 6,743 HAMP mods Proprietary mods Liquidations Sources: Hope Now Reports and Urban Institute. Note: Total liquidations includes both foreclosure sales and short sales. 2013 figures are through September. 22
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 80% Fannie Mae Freddie Mac Portfolio loans Overall Redefault rate 70% 60% 50% 40% 30% 20% 10% 0% 2008 2009 2010 2011 2012 Year of modification Sources: OCC Mortgage Metrics Report for the Second Quarter of 2013 and Urban Institute. Redefault Rate 24 Months after Modification Fannie Mae Freddie Mac Governmentguaranteed Private Governmentguaranteed Private Portfolio loans Overall Redefault rate 80% 70% 60% 50% 40% 30% 20% 10% 0% 2008 2009 2010 2011 Year of modification Sources: OCC Mortgage Metrics Report for the Second Quarter of 2013 and Urban Institute. 23
AGENCY ISSUANCE AGENCY GROSS AND NET ISSUANCE While newly issued agency securities (agency gross issuance) have been robust year to date, 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 GSE Ginnie Mae Total Issuance Year GSE Ginnie Mae Total 2000 $360.6 $102.2 $462.8 2001 $885.1 $171.5 $1,056.6 2002 $1,238.9 $169.0 $1,407.9 2003 $1,874.9 $213.1 $2,088.0 2004 $872.6 $119.2 $991.9 2005 $894.0 $81.4 $975.3 2006 $853.0 $76.7 $929.7 2007 $1,066.2 $94.9 $1,161.1 2008 $911.4 $267.6 $1,179.0 2009 $1,280.0 $451.3 $1,731.3 2010 $1,003.5 $390.7 $1,394.3 2011 $879.3 $315.3 $1,194.7 2012 $1,288.8 $405.0 $1,693.8 2000 $159.8 $29.3 $189.1 2001 $367.8 -$9.9 $357.9 2002 $357.6 -$51.2 $306.4 2003 $335.0 -$77.6 $257.4 2004 $83.3 -$40.1 $43.2 2005 $174.4 -$42.2 $132.1 2006 $313.6 $0.3 $313.8 2007 $514.7 $30.9 $545.5 2008 $314.3 $196.4 $510.7 2009 $249.5 $257.4 $506.8 2010 -$305.5 $198.2 -$107.3 2011 -$133.4 $149.4 $16.0 2012 -$46.5 $118.4 $71.9 2013 (Annualized) $1,270.5 $417.9 $1,688.4 2013 (Annualized) $68.1 $90.3 $158.4 2013 YTD $1,058.7 $348.3 $1,407.0 Sources: embs, Federal Reserve Bank of New York, and Urban Institute. Note: Year to date through October 2013. Dollar amount is in billions. 2013 YTD $56.7 $75.3 $132.0 Sources: embs, Federal Reserve Bank of New York, and Urban Institute. Note: Year to date through October 2013. Dollar amount is in billions. 24
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. Ginnie Mae s share reached a peak of 28 percent of total agency issuance in 2010, and then declined; as of October, however, its share has once again reached the peak level. This reflects rising interest rates, and the subsequent transition from a refinance market to a purchase market. Ginnie Mae is a larger share of purchase activity than of refinance activity. Ginnie Mae Fannie Mae Freddie Mac Sources: embs, Federal Reserve Bank of New York, and Urban Institute. Fed Absorption of Agency Gross Issuance 250 250 200 150 100 50 0 The Fed has absorbed 48 percent of gross issuance this year. This number is expected to rise unless the Fed tapers, as gross issuance continues to decline while net new Fed purchases remain stable. Gross issuance Fed purchases 200 150 100 50 0 Oct-00 Apr-01 Oct-01 Apr-02 Oct-02 Apr-03 Oct-03 Apr-04 Oct-04 Apr-05 Oct-05 Apr-06 Oct-06 Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 $ billions Oct-00 Apr-01 Oct-01 Apr-02 Oct-02 Apr-03 Oct-03 Apr-04 Oct-04 Apr-05 Oct-05 Apr-06 Oct-06 Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 $ billions Sources: embs, Federal Reserve Bank of New York, and Urban Institute. 25
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 2005-2007. 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% 22.7% 70% 60% 50% 41.2% 40% 30% 20% 10% 36.0% 0% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Sources: Inside Mortgage Finance and Urban Institute. Q1-Q3 26
AGENCY ISSUANCE MORTGAGE INSURANCE ACTIVITY The table below charts the history of FHA mortgage insurance premiums since 2001. 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) 1/1/2001-7/13/2008 150 50 7/14/2008-9/30/2008* 175 55 10/1/2008-4/4/2010 175 55 4/5/2010-10/3/2010 225 55 10/4/2010-4/17/2011 100 90 4/18/2011-4/8/2012 100 115 4/9/2012-6/10/2012 175 125 6/11/2012-3/31/2013 a 175 125 4/1/2013 - present b 175 135 Sources: Ginnie Mae and Urban Institute. Note: A typical purchase loan qualifies as one with 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. 27
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 percent of loans originated in 2011 and 2012 were for borrowers with FICO scores above 750, compared to 36 percent of borrowers in 2007 and 32.4 percent from 1999-2004. Balance on 30-year, Fixed-rate, Full-doc, Amortizing Loans Only Origination Year 1999-2004 2005 2006 2007 2008 2009-2010 2011-2012 Origination FICO LTV 70 70 to 80 80 to 90 >90 Total 700 10.3% 16.8% 5.0% 5.0% 37.2% 700 to 750 9.6% 14.4% 3.4% 3.1% 30.4% >750 14.1% 14.1% 2.3% 1.9% 32.4% Total 34.0% 45.3% 10.7% 10.0% 100.0% 700 13.7% 17.4% 3.8% 2.6% 37.5% 700 to 750 10.0% 13.5% 2.1% 1.3% 27.0% >750 15.9% 16.6% 1.8% 1.2% 35.5% Total 39.6% 47.5% 7.7% 5.2% 100.0% 700 13.7% 18.2% 4.0% 2.5% 38.4% 700 to 750 9.1% 13.8% 2.2% 1.2% 26.2% >750 14.3% 17.8% 2.1% 1.2% 35.3% Total 37.1% 49.8% 8.2% 4.9% 100.0% 700 11.6% 17.0% 5.9% 3.6% 38.2% 700 to 750 8.0% 12.8% 3.0% 1.7% 25.6% >750 13.8% 17.8% 2.9% 1.8% 36.3% Total 33.4% 47.6% 11.9% 7.0% 100.0% 700 8.3% 8.2% 3.4% 2.4% 22.2% 700 to 750 8.3% 12.8% 4.4% 2.8% 28.3% >750 17.5% 23.7% 5.2% 3.0% 49.4% Total 34.1% 44.7% 13.0% 8.2% 100.0% 700 4.0% 3.2% 0.3% 0.2% 7.7% 700 to 750 9.0% 11.9% 1.8% 0.9% 23.7% >750 31.1% 32.2% 3.8% 1.5% 68.6% Total 44.1% 47.4% 5.9% 2.7% 100.0% 700 2.9% 3.6% 0.5% 0.6% 7.7% 700 to 750 6.9% 10.7% 2.3% 2.5% 22.4% >750 27.4% 32.5% 5.4% 4.6% 70.0% Total 37.2% 46.9% 8.3% 7.7% 100.0% Total 36.8% 46.4% 9.4% 7.4% 100.0% Sources: Fannie Mae and Urban Institute calculation. 28
SPECIAL FEATURE: LOAN LEVEL CREDIT DATA FROM THE GSEs FANNIE MAE DEFAULT RATE As you can see from the previous page, the 2007 vintage year had a similar composition to the 2004 and earlier vintage years, but a much higher default rate due to a very unfavorable environment for home prices. Recent originations, 2009 and later, have both pristine composition and a favorable home price environment, contributing to very low default rates. Origination Year 1999-2004 2005 2006 2007 2008 2009-2010 2011-2012 Default Rate on 30-year, Fixed-rate, Full-doc, Amortizing Loans Only Origination LTV FICO <70 70 to 80 80 to 90 >90 Total 700 3.3% 4.2% 5.8% 6.6% 4.5% 700 to 750 1.0% 1.7% 2.7% 2.8% 1.7% >750 0.3% 0.7% 1.5% 1.7% 0.7% Total 1.4% 2.3% 3.9% 4.5% 2.4% 700 12.5% 16.1% 19.0% 20.6% 15.4% 700 to 750 5.4% 8.7% 11.4% 11.7% 7.8% >750 2.0% 4.1% 6.8% 7.6% 3.4% Total 6.5% 9.8% 14.0% 15.2% 9.1% 700 16.8% 21.3% 25.1% 26.3% 20.4% 700 to 750 7.7% 12.3% 15.3% 15.5% 11.1% >750 2.7% 5.6% 8.9% 9.3% 4.7% Total 9.2% 13.2% 18.5% 19.4% 12.4% 700 18.4% 22.8% 30.9% 31.4% 23.5% 700 to 750 7.8% 13.1% 19.7% 18.6% 12.6% >750 2.7% 5.8% 11.7% 11.4% 5.4% Total 9.4% 13.9% 23.3% 23.3% 14.1% 700 13.2% 16.7% 23.9% 23.7% 17.2% 700 to 750 4.5% 7.9% 13.3% 12.9% 8.2% >750 1.2% 2.8% 6.6% 7.1% 2.9% Total 4.9% 6.8% 13.4% 13.9% 7.6% 700 2.3% 3.4% 3.7% 3.9% 2.8% 700 to 750 0.5% 1.2% 1.6% 1.8% 1.0% >750 0.1% 0.4% 0.7% 0.9% 0.3% Total 0.4% 0.8% 1.2% 1.5% 0.6% 700 0.2% 0.4% 0.2% 0.3% 0.3% 700 to 750 0.0% 0.1% 0.1% 0.1% 0.1% >750 0.0% 0.0% 0.1% 0.1% 0.0% Total 0.0% 0.1% 0.1% 0.1% 0.1% Total 2.3% 3.7% 6.6% 6.4% 3.7% Sources: Fannie Mae and Urban Institute calculation. Note: Default rate refers to loans more than six months delinquent or disposed of via short sales, third-party sales, deeds-in-lieu of foreclosure, or real estate owned (REO acquisitions). 29
SPECIAL FEATURE: LOAN LEVEL CREDIT DATA FROM THE GSEs FREDDIE MAC COMPOSITION Since 2008, the composition of loans purchased by Freddie Mac has shifted towards borrowers with higher FICO scores. For example, 70.2 percent of loans originated in 2011 and 2012 were for borrowers with FICO scores above 750, compared to 38.4 percent in 2007 and 33.2 percent from 1999-2004. Balance on 30-year, Fixed-rate, Full-doc, Amortizing Loans Only Origination Year 1999-2004 2005 2006 2007 2008 2009-2010 Origination LTV FICO 70 70 to 80 80 to 90 >90 Total 700 7.7% 16.5% 5.5% 5.6% 35.3% 700 to 750 8.9% 15.9% 3.4% 3.1% 31.5% >750 13.7% 15.5% 2.3% 1.8% 33.2% Total 30.3% 48.0% 11.2% 10.5% 100.0% 700 10.5% 17.0% 3.4% 3.0% 33.9% 700 to 750 9.3% 15.5% 2.0% 1.7% 28.5% >750 15.7% 18.8% 1.7% 1.4% 37.6% Total 35.6% 51.3% 7.1% 6.0% 100.0% 700 10.0% 17.4% 3.5% 3.3% 34.2% 700 to 750 8.2% 16.2% 1.9% 1.6% 27.9% >750 14.2% 20.6% 1.7% 1.4% 37.9% Total 32.4% 54.2% 7.2% 6.3% 100.0% 700 9.1% 15.6% 4.7% 5.1% 34.6% 700 to 750 7.4% 14.3% 2.6% 2.7% 27.0% >750 14.0% 19.2% 2.5% 2.6% 38.4% Total 30.5% 49.2% 9.9% 10.5% 100.0% 700 7.3% 8.9% 3.3% 2.3% 21.8% 700 to 750 9.1% 13.0% 3.7% 2.5% 28.4% >750 21.3% 21.3% 4.7% 2.6% 49.9% Total 37.7% 43.2% 11.8% 7.4% 100.0% 700 3.9% 3.3% 0.3% 0.2% 7.8% 700 to 750 9.3% 11.9% 1.7% 0.9% 23.8% >750 32.4% 31.0% 3.6% 1.4% 68.4% Total 45.7% 46.1% 5.6% 2.5% 100.0% 700 3.3% 3.1% 0.5% 0.5% 7.4% 700 to 750 7.5% 11.0% 1.9% 2.1% 22.5% 2011-2012 >750 27.4% 33.8% 4.8% 4.1% 70.2% Total 38.2% 47.9% 7.2% 6.8% 100.0% Total 34.9% 48.1% 9.2% 7.8% 100.0% Sources: Freddie Mac and Urban Institute calculation. 30
SPECIAL FEATURE: LOAN LEVEL CREDIT DATA FROM THE GSEs FREDDIE MAC DEFAULT RATE As you can see from the previous page, the 2007 vintage year had a similar composition to the 2004 and earlier vintage years, but a much higher default rate due to a very unfavorable environment for home prices. Recent originations, 2009 and later, have both pristine composition and a favorable home price environment, contributing to very low default rates. Default Rate on 30-year, Fixed-rate, Full-doc, Amortizing Loans Only Origination Origination LTV Year FICO 70 70 to 80 80 to 90 >90 Total 700 2.4% 3.5% 5.3% 5.8% 3.9% 1999-2004 700 to 750 0.8% 1.3% 2.2% 2.4% 1.4% >750 0.3% 0.6% 1.2% 1.4% 0.6% Total 1.0% 1.8% 3.5% 4.0% 2.0% 700 9.6% 13.3% 15.6% 17.0% 12.7% 2005 700 to 750 4.6% 7.7% 10.1% 10.3% 7.0% >750 1.6% 3.7% 5.9% 6.7% 3.0% Total 4.8% 8.1% 11.7% 12.8% 7.4% 700 12.8% 17.0% 19.6% 21.4% 16.5% 2006 700 to 750 6.6% 10.5% 12.7% 12.3% 9.6% >750 2.2% 5.0% 7.2% 7.8% 4.1% Total 6.6% 10.5% 14.7% 16.2% 9.9% 700 13.2% 17.8% 22.2% 24.1% 18.1% 2007 700 to 750 6.3% 11.1% 14.6% 14.9% 10.5% >750 2.2% 5.2% 8.4% 9.6% 4.6% Total 6.5% 10.9% 16.7% 18.1% 10.9% 700 9.8% 12.8% 17.6% 16.7% 12.9% 2008 700 to 750 3.5% 6.5% 10.2% 9.0% 6.2% >750 1.0% 2.6% 5.3% 5.0% 2.3% Total 3.3% 5.9% 10.3% 10.0% 5.7% 700 1.4% 2.2% 2.5% 2.6% 1.8% 2009-2010 700 to 750 0.3% 0.8% 1.1% 1.1% 0.7% >750 0.1% 0.3% 0.6% 0.6% 0.2% Total 0.3% 0.6% 0.8% 1.0% 0.4% 700 0.1% 0.2% 0.1% 0.3% 0.2% 2011-2012 700 to 750 0.0% 0.0% 0.0% 0.1% 0.0% >750 0.0% 0.0% 0.0% 0.1% 0.0% Total 0.0% 0.0% 0.0% 0.1% 0.0% Total 2.0% 3.7% 5.9% 6.7% 3.5% Sources: Freddie Mae and Urban Institute calculation. Note: Default rate refers to loans more than six months delinquent or disposed of via short sales, third-party sales, deeds-in-lieu of foreclosure, or real estate owned (REO acquisitions). 31
SPECIAL FEATURE: LOAN LEVEL CREDIT DATA FROM THE GSEs DEFAULT RATE BY VINTAGE YEAR With cleaner books of business and the housing recovery underway, default rates for the GSEs are much lower than they were just a few years ago. For Fannie Mae and Freddie Mac s 1999-2003 vintages, cumulative defaults total around 2 percent, while cumulate defaults for the 2007 vintage are above 14 percent and 11 percent respectively. For both Fannie Mae and Freddie Mac, cumulative defaults from 2009-10 and 2011-12 are on pace to fall below pre-2003 levels, totaling about a 0.05 percent default rate for Fannie Mae and 0.02 percent for Freddie Mac, compared to 0.42 and 0.17 percent respectively. Fannie Mae Cumulative Default Rate by Vintage Year Percent of loans in default 16% 14% 12% 10% 8% 6% 4% 2% 2008 2007 2006 2005 2004 1999-2003 0% 2011-12 2009-10 0 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61 65 69 73 77 81 85 89 93 97 101 105 109 113 117 121 125 129 133 137 141 145 149 153 157 161 168 Sources: Fannie Mae and Urban Institute. Loan age in months Freddie Mac Cumulative Default Rate by Vintage Year Percent of loans in default 12% 10% 8% 6% 4% 2% 2008 2007 2006 2005 2004 1999-2003 0% 2011-12 2009-10 1 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61 65 69 73 77 81 85 89 93 97 101 105 109 113 117 121 125 129 133 137 141 145 149 153 157 161 165 Loan age in months Sources: Freddie Mac credit database and Urban Institute. Note: Default is defined as more than six months delinquent or disposed of via short sales, third-party sales, deed-in-lieu of foreclosure, or real estate owned (REO acquisitions). 32
RELATED HFPC WORK PUBLICATIONS AND EVENTS Issue Papers and Briefs The Impact of Mortgage Rate Increases on Housing Affordability Authors: Lan Shi, Laurie Goodman November 12, 2013 By most measures, the US housing market appears to be in strong recovery. House prices have risen consistently since January 2013, and by August, the US median home price was the highest it had been since December 2004. As a result of a stronger economy, mortgage rates also have increased consistently since December 2012. Though these trends indicate that the country is in a housing recovery, they have also made housing less affordable over the past several months. Moreover, employing a unique methodology that accounts for regional differences in debt-to-income and loan-to-value ratios, we find that affordability varies significantly among major metropolitan areas. Reps and Warrants: Lessons from the GSEs Experience Authors: Laurie Goodman, Jun Zhu October 24, 2013 GSE credit has become very tight, with a significant increase in the average credit score of approved loans. How Fannie Mae and Freddie Mac are enforcing their Representations and Warranties (Reps and Warrants) rights is playing a significant role in this phenomenon. In this paper, we use the recently released Freddie Mac and Fannie Mae loan-level credit data and find that put-backs are having an outsized chilling effect on lower FICO/higher LTV loans. The GSE Reform Debate: How Much Capital Is Enough? Authors: Laurie Goodman, Jun Zhu October 24, 2013 This paper shows that collateral composition, house price experience, and diversification significantly affect credit risk, and thus the amount of private capital needed in front of any government catastrophic guarantee of mortgages in the secondary market. Eminent Domain: The Debate Distracts from Pressing Problems Author: Pamela Lee October 24, 2013 Richmond, CA, has taken steps to become the first city in the nation to vote to use its powers of eminent domain to seize underwater loans and, the city argues, prevent foreclosures and neighborhood blight. We look at several cities that have considered this controversial strategy, evaluating what they have in common, and whether the plan, as proposed, will address the problems they face. QRM Comment Letter: Credit Risk Retention Author: Laurie Goodman October 24, 2013 On August 22, the six regulatory agencies proposed rules for risk retention under Section 941 of the Dodd Frank Act. In this comment letter, we focused on one aspect of the proposal, the Qualified Residential Mortgage (QRM) definition for residential mortgage backed securities. Testimony Housing Finance Reform: Fundamentals of Transferring Credit Risk in a Future Housing Finance System Author: Laurie Goodman November 19, 2013 The GSEs recently completed three transactions that transferred some of the risk from their guarantor book of business to private investors. In the context of reforms to the nation s housing finance system, this testimony before the Senate Banking Committee focuses on the extent to which these deals are transferrable, and to what degree. 33