Black Knight: Consumers aren’t getting Fannie, Freddie 3% down mortgages

FHA still dominates high-LTV loan market

For all the uproar that surrounded Fannie Mae and Freddie Mac introducing loan programs that allowed buyers to put down as little as 3% around this time last year, not many buyers are actually taking advantage of the low down payment loans, according to a new report from Black Knight Financial Services (BKFS).

In Dec. 2014, Fannie and Freddie officially rolled out 97% loan-to-value products. At the time, officials from the Federal Housing Finance Agency said that they expected the low down payment loans to represent a small portion of the government-sponsored enterprises’ business moving forward.

Black Knight’s latest Mortgage Monitor report, released Monday, shows just how small that portion actually is.

According to Black Knight’s report, high-LTV loans (loans with LTV’s above 95%) from the GSEs have accounted for less than 3% of the total number of high-LTV loans originated in 2015.

Overall, high-LTV loans represent only approximately 1% of the total GSE-backed originations in 2015 so far. Fannie and Freddie don't write loans, but rather securitize mortgages on the secondary, bond markets.

Black Knight’s report shows that high-LTV loans insured by the Federal Housing Administration or the Department of Veterans Affairs still dominate the market.

According to Black Knight’s report, loans insured by the FHA or the VA still account for more than 90% of the total number of high-LTV loan originations – a figure that has held steady above 90% since 2009.

And high-LTV loans account for 77% of the total number of FHA or VA loan originations as well.

According to Black Knight Data & Analytics Senior Vice President Ben Graboske, those figures were far different before the housing crisis.

“Back in 2007, the GSEs made up over 45% of high-LTV purchase originations, while FHA/VA lending made up roughly one-third,” Graboske said.

“Since 2009, FHA/VA products have made up over 90% of high-LTV purchase originations every year, and the same is true in 2015, even with the GSEs having reintroduced their own 97% LTV products,” Graboske continued. “In fact, those products have accounted for less than 3% of all high-LTV originations so far this year.”

Overall, high-LTV purchase originations were up 20% percent in the third quarter 2015, compared with an approximately 13% increase for the purchase market overall.

According to Black Knight’s data, high-LTV loans now make up 23% of the total number of purchase originations.

Additionally, Black Knight’s report showed that average credit scores are rising for FHA/VA high-LTV borrowers. According to Black Knight’s data, average credit scores for FHA/VA high-LTV borrowers are up 6 points from last year to 706.

Graboske noted that credit scores for GSE and portfolio high-LTV loans are roughly 35 points higher that the FHA/VA loans.

“We’ve actually seen annual declines in high-LTV lending among 620-660 credit scores for each of the past six months even though overall high-LTV purchase volumes have risen in each of those months,” Graboske said.

“This may be attributed to tightening credit, or it may be that the FHA’s reduced annual mortgage insurance – which FHA estimates will reduce borrowers’ mortgage payments by $900/year – has enticed some higher-credit borrowers into those FHA products,” he concluded.

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