May 2016 - Rise and Fall

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44 | TH E M R EP O RT O R I G I NAT I O N S E R V I C I N G A NA LY T I C S S E C O N DA R Y M A R K E T ORIGINATION THE LATEST First-time Homebuyer Activity Rebounds Both government-backed and private mortgages see uptick. N ow that the effects from the TILA-RESPA Integrated Disclosure (TRID) rule have sub - sided significantly in the housing market, first-time buyer activity has begun to pick back up. According to the First-Time Buyer Mortgage Share Index (FBMSI) from The American Enterprise Institute (AEI) International Center on Housing Risk, the share and volume of first-time homebuyers rose signifi - cantly in February 2016 compared to a year earlier. The FBMSI also showed that first-time buyers accounted for 56.7 percent of primary owner-oc - cupied home purchase mortgages with a government guarantee in February 2016, up from 55.9 percent last February and 56.1 percent in January. "The first-time buyer share has been trending higher on a year-over-year basis, pushed up by improvements in the labor market, riskier mortgage lending, and continuing low mortgage rates," the report stated. According to Edward Pinto, Co-director of the American Enterprise Institute's International Center on Housing Risk, entry- level buying is on the rise. "On a year-over-year basis, the first-time buyer share increased in February, reflecting a continuation of strong first-time buyer participation," Pinto said. "The current housing market, particularly at the entry-level, is exhibiting strong, leverage-fueled demand, which in combination with shortness of supply, will continue to drive home prices up faster than incomes and inflation." The combined FBMSI, which measures the share of first-time buyers for both government-guaranteed and private-sector mortgages, totaled about 51.2 percent in February, up from 50.5 percent a year ago and up from 50.7 percent in January. Additionally, the number of primary owner-occupied purchase mortgages by first-time buyers was up, too—12 percent to be exact—from the same period last year. "We had expected first-time buyer activity to rebound from the TRID-related slowdown last month, and that is what happened" said Stephen Oliner, Co-director of AEI's International Center on Housing Risk. "We are again seeing robust increases in loans to first-time buyers." The uptick among the first-time buyer share and volume provides explanation for tight inventory in the long-time seller's market. "The typical first-time buyer these days has a relatively low credit score and puts little money down," Oliner said. "These facts make clear that mortgage credit isn't tight. This risk profile for first-time buyers implies that the supply of mortgage credit to this group is not tight. In February 2016, the median first-time buyer with an agency mortgage made a down payment of only 3.5 per - cent, or $8,600 in dollar terms. Moreover, the median FICO score in February for first-time buyers with agency mortgages was 707, slightly below the median of 713 for all individuals in the United States with a score. For first-time buyers with FHA-insured loans, the median FICO score in February was only 675, well below the middle of the distribu - tion for the U.S. as a whole. These data are a strong counterpoint to the frequent claims that first-time buyers face difficulties in obtaining mortgages.,"he continued "The typical first-time buyer these days has a relatively low credit score and puts little money down. These facts make clear that mortgage credit isn't tight." —Stephen Oliner, Co-director, AEI's International Center on Housing Risk FHA Clarifies Bank Liability for Mortgage Errors Golding says minor mistakes will not be focus of compliance efforts. E d Golding, Federal Housing Administration (FHA) head and prin- cipal deputy assistant for housing, recently announced the latest loan-level and annual lender-level certifications, hoping to add clarity and appease banks and large lenders that have pulled out of the FHA loan program or implemented harsher credit standards for fear of lawsuits and penalties over troubled loans. "These certifications are key tools that help to ensure lend - ers comply with our policies, including those that are designed to protect borrowers and ensure quality lending practices," Golding said. "We recognize the impor - tant role these particular certifica- tions play for the industry and believe we have achieved the clarity that we and the industry sought while maintaining ac- countability." Annually, lenders are required to submit certification that they and their officers are qualified to originate FHA-backed loans. In addition, they must also certify that the loan meets FHA standards, according to the Scotsman Guide. Now, lenders are speaking up to say that the wording in these certifications is "overly vague and exposes them to buyback demands and other penalties if the loans default." Golding noted in his release that the FHA identifies what lenders will be held account - able for only those mistakes that would have altered the decision to approve the loan. Minor mis- takes that do not affect the loan decision will not be the focus of their compliance efforts. The new language reinforces FHA's longstanding position that lenders should not be penalized for minor mistakes. Continued on page 48

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