The Mortgage Corner
With news that Fannie Mae, one of the GSEs now managed by the Federal Housing Finance Authority (and US Treasury) just showed a $1.1B profit in Q1, but must pass all of it profits to Treasury since 2012, the question of how to resolve the status of major mortgage guarantors Fannie Mae and Freddie Mac becomes even more critical.
Why? They will have no capital left after 2017, and ““Operating with essentially zero capital is not sustainable,” said Fannie CEO Tim Mayopoulos on the Thursday morning earnings call, just after his company reported a $1.14 billion profit in the first three months of the year, the 17th consecutive quarter of profitability.
Yet banks and other non-GSE lenders aren’t stepping up to the plate to replace Fannie and Freddie. And they still guarantee more the 60 percent of all conventional mortgages. Private capital is “unwilling to step in” to replace the government-sponsored enterprises as mortgage finance leaders in the secondary market, said Mayopoulos to HousingWire’s Jacob Gaffney.
This is hurting the housing market, needless to say, as the GSEs keep tightening qualification standards in an attempt to satisfy Treasury that it is shrinking its loan portfolio. The average Fannie borrower’s FICO score was 746 in the first quarter. By way of comparison, the median credit score across the entire mortgage market in 2001, before the bubble era, was 701.
And that is even high, as scores of 620 to 680 were more prevalent in past decades because it was hard for homeowners to avoid at least one mortgage late payment in a year, what with so many payments made via snail mail. In fact, both FHA and VA, the other two Government Supervised Entities, allow credit scores as low as 520.
Fannie’s serious delinquency rate also shows cleaner credit quality. It fell for the 24th quarter in a row in the beginning of the year, to 1.44 percent. According to the company’s financial statement, that number would be even lower if foreclosures didn’t take so long in many states.
And Freddie Mac reported the Single-Family serious delinquency rate decreased in March to 1.20 percent from 1.26 percent in February. Freddie's rate is down from 1.73 percent in March 2015. This is the lowest rate since August 2008.
All this is making it more difficult for younger, first-time homebuyers with generally lower incomes, savings and credit scores. The NAR’s March existing-home sales survey reported the share of first-time buyers was 30 percent in March, unchanged both from February and a year ago. First-time buyers in all of 2015 also represented an average of 30 percent.
"With rents steadily rising and average fixed rates well below 4 percent, qualified first-time buyers should be more active participants than what they are right now," said the NAR’s chief economist Lawrence Yun. "Unfortunately, the same underlying deterrents impacting their ability to buy haven't subsided so far in 2016. Affordability and the low availability of starter homes is still a major barrier for them in most markets."So there is no reason that credit requirements should be tightening at a time when more first-time homebuyers are entering the housing market. And there is plenty of evidence that the younger generations want and need housing.
Harlan Green © 2016
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