High LTV Lending Conference Eric Belsky May 213 Chapel Hill, NC
Homeownership Has Mattered Profoundly to Wealth Accumulation Even After Crude Control for Income 12 Median Net Worth of Middle Income Quintile Households (Thousands of Dollars) 1 8 6 Owners Renters 4 2 24 21 Note: All values are in 21 dollars, for the middle income quintile. Source: Joint Center tabulations of Board of Governors of the Federal Reserve System, Survey of Consumer Finances.
Home Equity Rises Sharply with Income and Is Sharply Higher for Non-Hispanic Whites $3 $25 Average housing equity by race/ethnicity and income quartiles (Thousands of 21 dollars) 21 21 238 262 $2 159 167 $15 $1 6 83 79 84 13 112 1 97 $5 $ Non-Hispanic Whites African-Americans Hispanics Lower-Middle Income Quartile Upper-Middle Income Quartile Highest Income Quartile Source: JCHS tabulations of the Survey of Consumer Finances 1989-21. 3
Yet Home Equity is a Much Larger Share of Wealth for Minorities and Lower Income Owners Average housing share of net wealth by race/ethnicity and income quartiles (Percent) 5 45 4 35 21 21 44 35 35 39 42 44 32 31 3 25 2 21 2 16 17 15 1 5 Non-Hispanic Whites African-Americans Hispanics Lower-Middle Income Quartile Upper-Middle Income Quartile Highest Income Quartile Source: JCHS tabulations of the Survey of Consumer Finances 1989-21. 4
The Generations Following the Baby Boomers Are Large and More Diverse 9 Number of People (Millions) 5 Minority Share of Population (Percent) 85 8 4 75 7 65 3 2 6 55 1 5 Echo Boom Baby Bust Baby Boom Echo Boom Baby Bust Baby Boom Note: Members of the baby-boom generation were aged 46-65 in 211, the baby bust generation aged 26-45, and the echo boom aged 6-25. Source: JCHS tabulations of US Census Bureau, Population Estimates for July 1, 211.
Minorities Will Drive Household Growth Households Household Growth, 21-2 1% 1% 8% 8% 6% 6% 4% 4% 2% 2% % ACS 211 White, Non Hispanic Black, Non Hispanic Asian / Other Hispanic % JCHS Low Projection Sources: JCHS 21 Household Growth Projections and US Census Bureau, 211 ACS
Minority Homeownership Gaps are Wide Homeownership Rate Gap relative to Non-Hispanic Whites (Percentage Point) 3 25 2 15 1 5 Black Hispanic Other Two or more races Notes: Black, multi-race, and other householders are non-hispanic. Hispanics may be of any race. Source: US Census Bureau, Current Population Survey/Housing Vacancy Survey, Q2 212. 7
Renters Have Minimal Savings and Wealth 5 4 3 2 1 Cash Savings (Thousands of dollars) 25th Percentile Median 75th Percentile Minority Total Net Wealth (Thousands of dollars) 3 25 2 15 1 5 25th Percentile Median White, Not-hispanic 75th Percentile Notes: Data for Renters only. Cash savings includes checking, saving, CD and money market accounts. Source: JCHS tabulations of 21 Survey of Consumer Finances. 8
Incomes at the Bottom Have Been Stagnating Mean household income in 211 constant dollars by income quintile $2, $18, $16, $14, $12, $1, $8, $6, Bottom Lower-Middle Middle Upper-Middle Top $4, $2, $ 1979 198 1981 1982 1983 1984 1985 1986 1987 1988 1989 199 1991 1992 1993 1994 1995 1996 1997 1998 1999 2 21 22 23 24 25 26 27 28 29 21 211 Source: U.S. Census Bureau, Current Population Survey, Annual Social and Economic Supplements. 9
CLTV of 95+ Common Among Prime Loans and Loans Backing Agency MBS Share of All Owner-Occupied Home Loan Purchase Originations Within LTV Range (Percent) 5% 45% 4% 35% 3% 25% 2% 15% 1% 5% % CoreLogic Servicing Data Base 22 26 28 5% 45% 4% 35% 3% 25% 2% 15% 1% 5% % Subprime/Alt-A Securities 22 26 9-95 LTV 95 or Higher LTV Source: JCHS tabulations of CoreLogic data, 22-28.
Minorities Have Much Lower Credit Scores Distribution of sample population by credit score decile and race/ethnicity (percent) 1% 9% 8% 7% 6% 5% Credit Score Decile: 1th 9th 8th 7th 6th 4% 5th 3% 4th 2% 1% % Non-Hispanic White Asian Black Hispanic American Indian Unknown 3rd 2nd 1st Source: Board of Governors of the Federal Reserve System, Report to the Congress on Credit Scoring and Its Effects on the Availability and Affordability of Credit, Submitted to the Congress pursuant to section 215 of the Fair and Accurate Credit Transactions Act of 23, August 27. 11
Median FICO Scores Are Much Lower Too Median credit score among all households, 21 76 74 72 738 726 76 74 72 75 726 743 754 7 68 66 64 676 67 7 68 66 64 62 688 62 White Black Hispanic Other Race/Ethnicity Income Quintile Source: Bostic, R., P. Calem and S. Wachter. (23) Hitting the Wall: Credit as an Impediment to Homeownership, November 13, Working Draft. 12
Increasing Downpayments and Capping Credit Scores Will Disproportionately Impact Minorities Percent of performing loans excluded from QRM mortgage market, alternate LTV and FICO definitions, by borrower race/ethnicity, 24-28 originations Percent of Performing Loans Excluded 7 6 5 4 3 2 1 12 29 18 5 38 6 49 23 11 27 18 6 3% Downpayment 1% Downpayment FICO 66 Non-Hispanic White African American Latino Asian Source: Roberto Quercia, Lei Ding, and Carolina Reid (212). Balancing Risk and Access: Underwriting Standards for Qualified Residential Mortgages, Center for Community Capital Research Report, January 212. 13
... And those with Lower Incomes Percent of performing loans excluded from QRM mortgage market, alternate LTV and FICO definitions, by borrower income, 24-28 originations Percent of Performing Loans Excluded 6 5 4 3 2 1 49 49 42 32 25 25 22 18 13 7 12 3% Downpayment 1% Downpayment FICO 66 Low-Income Moderate-Income Middle-Income Upper-Income 8 Note: Income categories are defined as follows: low less than 5% of MSA median income; moderate 5-79%; middle 8-119%; and upper 12%+ of MSA median income. Source: Roberto Quercia, Lei Ding, and Carolina Reid (212). Balancing Risk and Access: Underwriting Standards for Qualified Residential Mortgages, Center for Community Capital Research Report, January 212. 14
What Happens to FHA is Especially Important Share of Home Purchase Loans with Federal Backing (Percent) 8 7 6 5 4 3 2 21 211 1 Low Income Moderate Income High Income Black or African American Hispanic or Latino White Non- Hispanic Notes: Federally backed loans include FHA/VA and USDA Rural Housing loans. Low income is defined as less than 8 percent of area median income (AMI), moderate income is between 8 and 12 percent of AMI, and high income is above 12 percent of AMI. White householders are non-hispanic; Hispanics may be of any race; Black households may also be Hispanic. Source: JCHS tabulations of 21 and 211 Home Mortgage Disclosure Act published tables.
FHA Credit Score Distributions Have Shifted Towards Higher Scores 1 9 8 7 6 5 4 3 2 1 Share of FHA-Insured Mortgages by Dollar Volume (Percent) 26 27 28 29 21 211 Below 64 64-679 68-85 Note: FHA data exclude records with no credit score information. Source: US Department of Housing and Urban Development. Credit Score
Higher LTV Loans for Lower Credit Score Borrowers Are Now Nearly Unavailable Distribution of Credit Scores Within LTV Ranges for Owner-Occupied Home Purchase Originations Under 64 64-659 66-679 68 or Higher 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % 22 1% 212 9% 8% 7% 6% 5% 4% 3% 2% 1% % 85%+ - 9% 9%+ - 95% 95%+ - 1% 85%+ - 9% 9%+ - 95% 95%+ - 1% Loan to Value Range Source: JCHS tabulations of CoreLogic data servicing database, 22-212.
Fannie and Freddie Have Shifted Dramatically Toward Lower-Risk Loans 1 9 8 7 6 5 4 3 2 1 Share of Freddie Mac and Fannie Mae Originations (Percent) 26 29 High Risk Moderate Risk Low Risk Notes: High (low) risk loans are to borrowers with credits scores under 69 (above 75) and have loan-to-value ratios above 85% (below 75%). Source: Barclays Capital, GSEs: Back to the Future, US Interest Rates Strategy, 29.
Originating a Loan has Become a Lot More Costly: Retail Apps per Underwriter per Month 25 Large Lenders Small Lenders 2 188 193 152 165 15 1 5 12 134 12 124 126 99 112 13 124 82 113 94 75 72 6 57 22 23 24 25 26 27 28 29 21 211 Source: MBA/STRATMOR Peer Group Survey.
Renters Have Minimal Savings and Wealth Median Cash Savings of Renters and Owners By Income Quartile (Thousands of dollars) 2 15 1 5 Median Total Net Wealth of Renters and Owners By Income Quartile (Thousands of dollars) 5 4 3 2 1 Bottom Lower Middle Upper Middle Top Bottom Lower Middle Upper Middle Top Income Quartile Income Quartile Renters Owners Notes: Cash savings includes checking, saving, CD and money market accounts. Source: JCHS tabulations of 21 Survey of Consumer Finances.
CLTV of 95+ Common Among Prime Loans and Loans Backing Agency MBS Share of Owner-Occupied Home Loan Purchase Originations Year Subprime/Alt-A Securities Share: 8 or Less LTV 81-89 LTV 9-95 LTV 95 or Higher LTV Total Number of Loans 22 49% 3% 13% 8% 1% 23,8 24 57% 18% 11% 13% 1% 621, 26 69% 13% 7% 11% 1% 697,24 28 34% 26% 17% 22% 1% 19 Year Core Logic Servicing Data Base Share: 8 or Less LTV 81-89 LTV 9-95 LTV 95 or Higher LTV Total Number of Loans 22 56% 11% 15% 18% 1% 1,776,55 24 62% 9% 11% 19% 1% 2,656,65 26 61% 7% 7% 25% 1% 2,65,33 28 4% 13% 12% 35% 1% 2,18,56 Source: JCHS tabulations of CoreLogic data, 22-28.