HOUSINGNEWS REPORT
THE RETURN OF RISK: SUBPRIME SNEAKING BACK
The numbers tell us that mortgage borrowing has become increasingly restricted to the credit elite. For some that’s a problem because many applicants who would have gotten mortgage financing in the past no longer quality. “The mortgage market operated under reasonable standards in 2001,” said the Urban Institute in a separate report. “Using the standards from that year for comparison, we know that the increased reluctance to lend to borrowers with less-than-perfect credit killed about 6.3 million mortgages between 2009 and 2015. That’s too many families missing out on homeownership.” The tightening credit standards from 2009 to 2015 demonstrate that the mortgage industry became extremely risk-averse during that time period in reaction to the foreclosures and financial fallout from the high-risk mortgages originated in the previous five years. Foreclosure rates by loan vintage offer more evidence of the risk-averse nature of loan originators immediately following the foreclosure and financial crisis in 2008. More than 1 percent of still-open loans originated between 2005 and 2008 are in some stage of foreclosure, while the foreclosure rate on 2004 vintage loans is 0.85 percent — still about twice the long- term average, according to ATTOM Data Solutions. But foreclosure rates on loan vintages from 2010 onward are all below the long-term average, with particularly low rates on 2011, 2012 and 2013
vintages. Foreclosure rates jumped 41 percent for 2014 vintage loans but were still below the long-term average. More on what caused the 2014 increase later. April 2018 figures from Ellie Mae show that borrowers with credit scores below 650 represented roughly 10 percent of the purchase market and 15 percent of refis. Those with scores below 600 were less than 1 percent of purchases and less than 5 percent of the refi market. more than any other factor — have increased demand and pushed up home prices. Yet while mortgage rates slumped during the past decade, ownership costs actually increased. In 2008 the typical existing home sold for $116,039 and the annual interest rate stood at 6.03 percent. The Growth of Debt Low mortgage rates — arguably
With 5 percent down ($5,801.95), a borrower could finance $110,217 and face a monthly cost for principal and interest of $662.93. The typical existing home sold for $257,900 in April 2018, according to the National Association of Realtors (NAR), the 74th straight month of year-over-year gains. With 5 percent down ($12,895) the loan amount will be $245,005. At 4.45 percent the principal and interest cost per month is $1,241.40 — almost twice as much as the 6 percent borrower from 2008. Borrowers are increasingly tapped out. It’s not just that home values and interest rates have risen in tandem, it’s that other major debts are also growing. The Federal Reserve Bank of New York says recurring debt levels soared between 2008 and the end of 2017.
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JULY 2018 | ATTOM DATA SOLUTIONS
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