Thinking About Mortgage Financing & Servicing: FHA, VA and Nonbanks (All)

By: Clifford J. Treese

FYI, whether the USA Today story is correct or not about riskiness is another matter.  While much of the current focus on housing finance has been (appropriately) on Fannie Mae and Freddie Mac), the  data below should that FHA and VA still play an important role in U.S. Housing Finance.

The other message in the USA Today story is that the mortgage industry is dominated by non-bank lenders like Quicken Loans.

USA Today Story on Riskier Mortgages

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[Excerpt, red below mine,]

Riskier borrowers are making up a growing share of new mortgages, pushing up delinquencies modestly and raising concerns about an eventual spike in defaults that could slow or derail the housing recovery.  The trend is centered around home loans guaranteed by the Federal Housing Administration that typically require down payments of just 3% to 5% and are often snapped up by first-time buyers. The FHA-backed loans are increasingly being offered by non-bank lenders with more lenient credit standards than banks.

The landscape is nothing like it was in the mid-2000s when subprime mortgages were approved without verification of buyers’ income or assets, setting off a housing bubble and then a crash. And Quicken Loans, one of the largest FHA lenders, dismisses the concerns as overwrought. Still, for some analysts, the latest development is at least faintly reminiscent of the run-up to that crisis.

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Treese Data from FHA Reports

Table 6. FHA Single Family Insurance Activity Mortgage Market Shares by Loan Count, Fiscal Years 2004–2016

FHA Table 6. Early Payment Delinquency Rates by Product Type (%)

FHA Single Family Market Trends

Mortgage Insurance Activity (Urban Institute)

Treese: The other message in the USA Today story is that the mortgage industry is dominated by non-bank lenders like Quicken Loans.

See also GAO on Nonbank Mortgage Servicers

“The share of home mortgages serviced by nonbanks increased from approximately 6.8 percent in 2012 to approximately 24.2 percent in 2015 (as measured by unpaid principal balance). However, banks continued to service the remainder (about 75.8 percent). Some market participants GAO interviewed said nonbank servicers’ growth increased the capacity for servicing delinquent loans, but they also noted challenges. For example, rapid growth of some nonbank servicers did not always coincide with their use of more advanced operating systems or effective internal controls to handle their larger portfolios—an issue identified by the Consumer Financial Protection Bureau (CFPB) and others.”