At last. Residential mortgage (1-4 unit) lending is almost back to zero percent growth!
It has been a tough time for mortgage lenders since the passing of Dodd-Frank and the creation of the Consumer Financial Protection Bureau (CFPB). The Urban Institute has this chart showing that the absence of risky loans in the economy is the answer.
Now, hold on one second! I am unclear as to how Laurie Goodman and company define “risky,” but low down payment loans are more risky than 20% down payment loans empirically. I don’t know if the Urban Institute counts 3-5% down payment loans as risky in their chart.
Why mention loan down payment lending? Because Fannie Mae and Freddie Mac are the primary purchaser of single-family mortgages since the housing bubble burst. The FHA is an insurer, not a loan purchaser.
Here is some empirical evidence from Fannie Mae mortgage-backed securities (MBS). Here is the average loan-to-value (LTV) ratio for Fannie Mae 4% coupon MBS:
At least for 4% coupon Fannie MBS, the average LTV is higher now than during the housing bubble! So much for the story that Fannie and Freddie are “too tight” with mortgage credit.
Now, in terms of credit (FICO) score, Fannie 4% coupon MBS is higher today than during the housing bubble. But it continues to decline.
But how low should Fannie and Freddie expand (drop) their FICO box?
It is like a raccoon riding on the back of an alligator.
The raccoon hopes that the economy doesn’t tank and home prices fall (again).