Role of HFAs and FHA in supporting homeownership Ed Golding Housing Finance Policy Center Urban Institute HFA Institute Washington, DC January 12, 2018
Introduction Homeownership has been supported by HFAs and FHAs (and other anagrams) through low-down payment mortgages Those roles are as important today as they were in 1934 Private market tends to focus on the very low risk mortgages unless directed by government action Consumers still are not fully aware about the availability of lowdown payment mortgages and are often discouraged by less than perfect credit 2
FHA Share of Single-Family Originations, 1935-2017 FHA s share has averaged 13 percent over the entire period. FHA has played an important countercyclical role. 30% FHA share Average, 1935 2017 ±1 standard deviation 25% 20% 15% 10% 5% 0% 1935 1938 1941 1944 1947 1950 1953 1956 1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 Source: Inside Mortgage Finance, Mortgage Bankers Association, CoreLogic, and Urban Institute. Note: 2016 and 2017 share based on estimates. 3
FHA disproportionately serves first time homebuyers First Time Homebuyer Share 90% GSEs FHA GSEs and FHA 80% 81.6 70% 60% 50% 57.2 46.1 40% 30% 20% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: embs, Federal Housing Administration (FHA ) and Urban Institute. Note: All series measure the first time homebuyer share of purchase loans for principal residences. 4
FHA & VA provide the high LTV lending Agency Loan to Value Ratio Distributions GSE FHA VA 85% 77% 55% 40% 2% 4% 12% 14% 0% 5% 5% 1% 80% 80 95% 95 96.5% >96.5% Sources: embs and Urban Institute. LTV at origination 5
FHA borrowers have weaker credit characteristics Comparison of First Time and Repeat Homebuyers, GSE and FHA Originations GSEs FHA Characteristics First time Repeat First time Repeat Loan Amount ($) 226,878 250,283 201,996 225,734 Credit Score 738.4 753.7 675.0 681.5 LTV (%) 87.2 79.1 95.5 94.1 DTI (%) 35.1 35.7 42.2 43.4 Loan Rate (%) 4.15 4.02 4.18 4.10 Source: embs and Urban Institute. Note: Based on owner occupied purchase mortgages originated in September 2017. 6
FHA finances moderate credit Agency Credit Distributions GSE FHA VA 50% 35% 24% 29% 26% 1% 17% 18% 18% 15% 12% 11% 11% 11% 7% 4% 2% 8% <640 640 660 660 680 680 700 700 760 760 Sources: embs and the Urban Institute. Note: Based on purchase money agency originations from 2016. Credit score 7
FHA disproportionately serves minorities Percent of purchase loans by channel and race/ethnicity FHA Black Hispanic Asian White VA Conventional All 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percent of purchase loans that are FHA insured by race/ethnicity 45% 44% 11% 19% 23% Black Hispanic Asian White All Source: 2016 HMDA and Urban Institute. 8
Lack of info on down payments What Percentage Is Needed for a Down Payment? 5% or less 6% to 14% 15% to 20% More than 20% Nonowners 12% 23% 26% 39% Owners 13% 23% 35% 30% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Source: National Association of Realtors and Urban Institute. 9
Now is a good time to buy National Mortgage Affordability over Time Mortgage affordability with 20% down Mortgage affordability with 3.5% down Mortgage affordability index 40% Mortgage affordability with 20% down at 4.75% rate Mortgage affordability with 3.5% down at 4.75% rate 35% 30% 25% 20% 27.1% 25.3% 23.5% 22.0% 15% 10% 5% 0% Source: CoreLogic, US Census Bureau, Current Population Survey, American Community Survey, Moody s Analytics, Freddie Mac Primary Mortgage Market Survey, and Urban Institute. Note: Mortgage affordability is the share of median family income devoted to the monthly principal, interest, taxes, and insurance payment required to buy the median home at the Freddie Mac prevailing rate for a 30 year fixed rate mortgage and property tax and insurance at 1.75 percent of the housing value. 10
State mortgage affordability over time Percent Year Source: CoreLogic, US Census Bureau, Current Population Survey, American Community Survey, Moody s Analytics, Freddie Mac Primary Mortgage Market Survey, and Urban Institute. Notes: Mortgage affordability is the share of median family income devoted to the monthly principal, interest, taxes, and insurance payment required to buy the median home at the Freddie Mac prevailing rate for a 30 year fixed rate mortgage and property tax and insurance at 1.75 percent of the housing value. 11
HFA programs are available to help Number of Active Programs Source: Down Payment Resource and Urban Institute. 12
Conclusion Government programs at the local, state and national levels play an important role in promoting homeownership. Need better consumer awareness of many of these programs. Housing finance must be structured to serve all American families including those in need of rental assistance. In the words of FDR when framing his Second Bill of Rights it is time to recognize that every American has a right to a decent home. 13