In looking at the 2015 Home Mortgage Disclosure Act (HMDA) report released a couple weeks ago by the Federal Financial Institutions Examination Council (FFIEC), there is a lot of really good information.
Off the top, the data showing a (relatively) large jump in the market share of the Federal Housing Administration FHA was striking. This shift has a variety of implications for borrowers, lenders and taxpayers, so I wanted to look a little deeper.
Here is MBA’s breakdown of the 2014 HMDA data by loan type and ethnicity:
And here is the same breakdown for the 2015 data:
FHA’s share of the overall market increased four points, picking up almost all its gains from the conventional conforming share, which is composed primarily of loans backed by Fannie Mae and Freddie Mac (the GSEs). One must ask why.
One possible answer is simply pricing. In January of 2015, FHA reduced its annual Mortgage Insurance Premium (MIP) by 50 basis points for all loans with terms greater than 15 years, making FHA a cheaper alternative to the GSEs, particularly in the high LTV market for borrowers with lower credit scores.
Regardless of the cause, policymakers – Congress, FHA and FHFA – need to consider the implications of this shift and whether they are comfortable moving this volume around the government’s balance sheet. It’s clear that the pricing issues between the GSEs and FHA will drive the outcomes of first time homebuyers who will be more diverse in the years ahead than in decades past. How the respective secondary market participants address these imbalances will shape who provides financing for the homeowner of the future.
One other trend that jumped out was in the breakdown of the market by institution type and size.
Banks, both large and small, have become a smaller share of the market in terms of who is making loans, while non-depository independent mortgage banks (non-depository) and credit unions are a growing presence in the market. A look at purchase loan volume reinforces the retreat by the bigger banks (those with assets over $10b.) and the growing role of IMBs.
Long story short: IMBs are a growing and an important segment of the market. That is why MBA has been so adamant that Fannie Mae and Freddie Mac need to provide the same credit and pricing terms to all lenders, bank or non-bank, big and small.
By the way, this market share is not unprecedented given that in the mortgage market of the 1980s and 90s, IMBs dominated the FHA and VA market as they do today. However, these non-banks bring with them specific issues that policymakers should address if the market is going to work smoothly for all consumers.
These issues include providing equal access to the secondary market for lenders of all sizes, liquidity in the market for Ginnie Mae mortgage servicing rights (MSRs), ensuring GSE credit risk transfers don’t disadvantage smaller lenders, and fixing the transitional licensing regime under the SAFE Act.