New data from Federal Housing Finance Agency showed mortgages sold to the government-sponsored enterprises (GSEs) from 2001 to 2008 were a better quality and performed better as a percentage than private-label mortgage-backed securities (MBS). The data covers $10.6 trillion in single-family mortgages originated during those years. Of that total, 82%, or $8.6 trillion, was acquired by Fannie Mae and Freddie Mac. The other 18% was financed with private-label MBS. According to the FHFA, the GSEs acquired more than four times the amount of private financial institutions. And GSE borrower credit scores, loan-to-value ratios, payment types and performance have been better as a percentage than their private-label counterparts. Between 2001 and 2008, 5% of the mortgages sold to the GSEs were written for borrowers with FICO scores below 620, compared to the 32% of private-label mortgages. Also loans with a higher LTV relied more heavily on borrowed funds and posed more credit risk, according to the FHFA. The “vast majority of enterprise-acquired loans had LTV ratios at origination at 80% or less,” the housing agency said. These loans accounted for 82% of all mortgages sold to the GSEs from 2001 to 2008. For private-label MBS, 66% had ratios of 80% or less for the same period. Mortgages with 90% LTV ratios or higher made-up 9% of the GSE mortgages acquired in this time, while 11% of private-label MBS loans had the higher LTV ratios at origination. “The pattern of decreasing LTV ratios over time, most pronounced for loans financed with private-label MBS, is consistent with the greater use of second liens to avoid mortgage insurance on low-down payment mortgages, a practice that was increasingly common into 2007,” according to the FHFA. The data showed private-label MBS held more adjustable-rate mortgages than the GSEs. These loans often perform worse than fixed-rate loans. Of the GSE-acquried mortgages, 12% were adjustable-rate from 2001 to 2008, climbing as high as 21% in 2004. In that same time, 30% of private-label MBS mortgages were adjustable-rate, spiking to 47% in 2008. Roughly 5% of the GSE-acquired fixed-rate mortgages and 10% of fixed-rate loans originated between 2001 and 2008 fell into 90-plus day delinquency status, foreclosure or sold through REO. That’s compared to 20% of troubled fixed-rate mortgages and 30% of underperforming adjustable-rate loans in private-label MBS. But with the government’s exposure to Fannie and Freddie, taxpayers have felt the underperformance of these two firms more than private companies. The Treasury has funded $84.6 billion through Fannie Mae bailouts alone. Congress will hold more hearings on the future of the GSEs this week. Write to Jon Prior.
Agency MBS collateral quality tops private-label from ’01-’08: FHFA
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