January 2017 - The World's Local Bank

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TH E M R EP O RT | 47 O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T ORIGINATION THE LATEST First-Time Buyers Make Gains Amid Headwinds First-time buyer share increased 2.5 percentage points over the past two years. T he AEI Center for International Housing Risk declared that the rumors of the demise of the first-time buyer are "greatly exaggerated," citing a 39 percent rise in origination volume to first-time buyers over the last year and a market share increase of 2.5 percentage points over the previ- ous two years in August. AEI's data covers agency purchase loans, or mortgage loans that have a government guarantee. Approximately 93 percent of first- time buyer loans are agency loans, with the private market currently owning only about a 7 percent market share of first-time buyer loans, according to AEI. While some reports have indi - cated that tight credit standards are preventing first-time buyers from entering the housing market at a faster rate, Edward J. Pinto, Resident Fellow at AEI said rapid home price appreciation, particular - ly at the lower end of the market, has been one of the factors that has prevented would-be first-time buy- ers from making a purchase. Persistent short supply contin- ues to put upward pressure on home prices, and AEI believes that policy moves, such as increasing the GSE's conforming loan limits, which the Federal Housing Finance Agency did last week, may not help affordability. "House prices will continue to rise as long as too much demand keeps chasing too little supply," AEI Research Analyst Tobias Peter said. "Therefore, proposals such as lower mortgage insurance premi - ums or higher loan limits will only stimulate more demand, worsening affordability—not improving it." Meanwhile, the rapid price ap- preciation has put repeat buyers at an advantage, because higher prices have resulted in more equity. "Repeat buyers are in a better position because, by definition, they already own a home," said Ed Pinto, Co-director and Chief Risk Officer of the AEI International Center on Housing Risk. "The house they're buying also costs money, but they have more equity in the house they're selling, and the first-time buyer doesn't have that. First-time buyers are on the det - rimental side because prices have gone up 6 percent and incomes have gone up just 2 percent, so they have to use more leverage." While more first-time buyer agency loans were made, the gap is widening between risk on first- time buyer loans and repeat buyer loans. In August, AEI reported the First-Time Buyer Risk Index at 15.6 percent, which was largely unchanged from the previous year but 6.4 percentage points higher than the Repeat Buyer Risk Index. In August 2015, the gap between the two was 6.0 percentage points. AEI's First-Time Buyer Mortgage Share and Risk Indices cover nearly 5.1 million agency purchase loans from February 2013 through August 2016. New Milestones Indicate Expanding Credit Access Subprime and near-prime loans are on the rise. T wo categories of mort- gage originations that recently reached new milestones while origi- nations rose across all risk tiers were subprime and near-prime, according to the latest data from TransUnion—which the compa - ny said indicates that access to mortgage credit is expanding. TransUnion's Quarterly Insights Report for Q 3 2016 found that subprime originations grew by nearly 11 percent in the second quarter (viewed in one-quarter arrears). Approximately 64,000 subprime loans were originated in Q2, the most in nearly seven years, according to TransUnion. Lenders made approximately 262,000 near-prime mortgage originations in Q2, a post-reces - sion high for one quarter and an increase of 5.7 percent over the year, TransUnion reported. "These new milestones in subprime and near-prime account originations reflect growing credit access across the risk spectrum," said Joe Mellman, VP and head of TransUnion's Mortgage Group. While the number of subprime and near-prime mortgage loans is rising, Mellman stated, "We don't see a cause for concern," noting that subprime and near- prime originations still reported a relatively small market share in Q2—3.2 percent for subprime and 13.2 percent for near-prime. "We've seen underwriting relax somewhat as the recovery has progressed," Mellman said. "In Q2 2016, 36 percent of new loans are in prime and near-prime, com - pared to 32 percent in Q2 2013." Higher home prices led to higher mortgage loan amounts as mortgage balances rose by 1.7 percent over the year in Q 3 up to $8.39 billion, according to TransUnion. Black Knight Financial Services, in its October 2016 Mortgage Monitor released in December, also noted a spike in originations in Q 3 with their highest quarterly volume since the second quarter of 2009 ($579 billion in first-lien mortgages). Purchase volumes in - creased by 7 percent over the year in the third quarter, and their year-to-date total of $818 billion is the highest since 2007 for the first three quarters of a year, Black Knight reported.

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