Tag Archives: mortgage finance industry

How Are First-Time Homebuyers Doing?

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photo by designmilk

Genworth Mortgage Insurance Corporation released a a First-Time Home Market Report.  The big news from the report is that first-time homebuyers purchased fifteen percent more single-family homes in 2016 than in 2015.  The 2 million homes purchased in 2016 was the most since 2006, before the financial crisis. This is a positive sign for the housing market and for the homeownership rate which has fallen to long-time lows since the financial crisis. The Executive Summary reads,

First-time homebuyers represent an important segment of the housing market, generating significant revenue to real estate agents, homebuilders, and the mortgage finance industry. In this report, we adopt the Department of Housing and Urban Development (HUD) definition of first-time homebuyers as homebuyers who did not own a home in any of the prior three years  . . . Compared to repeat homebuyers, first-time homebuyers play a more pivotal role in influencing housing inventory and home prices because they represent the shift of housing demand from rental to owner occupancy. Despite this well-recognized dynamic, there has been limited data available on the first-time homebuyer market, starting with market size. In this report, we estimate the size of the first-time homebuyer market going back to 1994 using a combination of government and mortgage industry data—20.1 million actual first-time homebuyers were identified. This data provides a historical perspective on the first-time homebuyer market as well as important recent trends. (2)

The report’s key findings include,

1. Between 1994 and 2016, first-time homebuyers purchased on average 1.8 million single-family homes each year, accounting for over one in three of all single-family homes sold, and 45 percent of the purchase mortgages originated.

2. First-time homebuyers have led the housing recovery, contributing over 60 percent of the sales growth in the housing market over the past five years and 85 percent of the growth in the past two years. The resurgence of the first-time homebuyer market has contributed to very tight housing supplies and accelerating home prices, especially at the “low” end of the housing market.

3. During the Housing Crisis, the number of single-family homes sold to first-time homebuyers saw a peak to trough decline of 900,000 units (43 percent) – reaching a trough of just 1.2 million units in 2011. Over the last 10 years, the housing market has seen 3 million fewer first-time homebuyers in aggregate compared to the historical average.

4. The first-time homebuyer market stagnated during the historic housing expansion of the 1990s and early 2000s, leading to a decline in first-time homebuyer mix. Instead, it was repeat homebuyers, including second-home buyers and investors, who led the surge in housing activity.

5. The expansion of government lending programs and the implementation of the first-time homebuyer tax credit provided temporary support to first-time homebuyers. Between 2008 and 2010, first-time homebuyers represented 35 percent of all single-family home sales, which is close to its historical average. However, the percentage of single-family home sales to first-time homebuyers declined once the tax credit expired, and stayed below 30 percent for these three years.

6. First-time homebuyers have always demonstrated a greater need for low down payment mortgage products. Between 1994 and 2016, 73 percent of first-time homebuyers chose such products compared to 30-50 percent for repeat homebuyers. Mortgage products with a lower down payment will likely have a higher first-time homebuyer mix.

7. Private mortgage insurance and FHA (government-backed mortgage insurance) are the two leading products for first-time homebuyers and have together accounted for close to 1 million first-time homebuyers a year since 1994. They have played a key role in reviving the first-time homebuyer market in the current recovery, accounting for approximately 80 percent of its growth in the past two years.

8. First-time homebuyers purchased 2 million single-family homes in 2016, 15 percent more than 2015 – and the most since 2006. During the first quarter of 2017, there were more first-time homebuyers than any other year since 2005. A total of 424,000 single-family homes were sold to first-time homebuyers, up 11 percent from a year ago, and accounting for 38 percent of all single-family home sales. (3)

What If . . . Fannie and Freddie Imploded?

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photo by US HUD

So, I was spending some quality time with the Federal Housing Finance Agency Office of the Inspector General’s most recent Semiannual Report to the Congress. The Federal Housing Finance Agency (FHFA) is the regulator of Fannie and Freddie as well as their conservator. Essentially, the FHFA calls all of the shots for the two companies.

It got me to wondering, does the Office of the Inspector General really have a handle on whether Fannie and Freddie are in good shape or not? The report opens with a Snapshot of OIG Accomplishments. The Snapshot contains the following categories:

  • OIG Investigations Monetary Results
  • Judicial Actions
  • Hotline Contacts
  • Audit and Evaluation Reports Issued
  • White Papers Issued
  • Office of Compliance and Special Projects Reports Issued
  • Nonmonetary Recommendations Made
  • Regulations Reviewed
  • Responses to Requests Under the Freedom of Information Act

As I read through the report, I had the distinct feeling that I had got lost among the trees of bureaucratic oversight and had lost sight of the contours of the Frannie forest.

I want to know one thing — are the two companies solvent and will they be solvent for the foreseeable future? The OIG’s Snapshot is pretty backward facing and focuses on a lot of pretty minor issues, like counting hotline contacts, instead of focusing on the fundamentals.

I know, I know — if we can measure something, then we want to share it with the world, but the Snapshot actually decreases my faith that OIG and FHFA are taking care of the entire forest and not just a few of the trees they were able to measure.

That being said, the report does get  to some of the important issues later on. It acknowledges that

Since September 2008, FHFA has administered two conservatorships of unprecedented scope and undeterminable duration. Under HERA,the Agency’s actions as conservator are not subject to judicial review or intervention, nor are they subject to procedural safeguards that are ordinarily applicable to regulatory activities such as rulemaking. As conservator of the Enterprises, FHFA exercises control over trillions of dollars in assets and billions of dollars in revenue, and makes business and policy decisions that influence and impact the entire mortgage finance industry. For reasons of efficiency, concordant goals with the Enterprises, and operational savings, FHFA has determined to delegate revocable authority for general corporate governance and day-to-day matters to the Enterprises’ boards of directors and executive management. (10)

The OIG clearly understands what is at stake in the conservatorships. But as I read the remainder of the report, I did not see sufficient emphasis on the range of risks that Fannie and Freddie face, such as hedging risk and operational risk. Hopefully, someone at the FHFA is paying sufficient attention to the range of risks the two companies face. If not, we can expect a new type of crisis down the pike.