Just released mortgage data for 2008 confirm that the federal government effectively took over the housing credit markets last year.
The Home Mortgage Disclosure Act, HMDA, which requires banks to report detailed mortgage lending data every quarter, corroborates the increasing role that FHA, Fannie Mae and Freddie Mac played in the U.S. mortgage markets last year. The data also reflects how severe the credit crunch was on the mortgage business.
Due to dire market conditions, the government was forced to get more involved in mortgage lending last year. Loan limits at Fannie Mae, Freddie Mac and the FHA were increased markedly, which increased the government agencies’ market share. The mortgage credit market was on the verge of collapse last year with private mortgage insurance drying up and the private mortgage-backed securities market near ruin. As a result, Fannie Mae, Freddie Mac and the FHA became the primary providers of mortgage credit.
Fannie Mae and Freddie Mac together, increased their share of securitized mortgages to 42 percent in 2008 compared to a 28 percent share in 2006. Conversely, private securitization fell to 0.6 percent from a 10 percent share in 2006.
The FHA experienced the greatest rise in business last year with the number of FHA-insured loans rising to a 21 percent market share last year compared to only a 6 percent market share in 2007. The substantial rise in FHA’s business volume has caused concern that the government agency may not be equipped to handle the increased volume. Housing analysts worry about deteriorating credit quality.
However, a study released by the Federal Reserve reveals that a high percentage of FHA-insured loans were obtained by borrowers with acceptable credit scores. The study reports that the share of FHA home-purchase loans to prime borrowers increased from 30 percent in 2007 to 60 percent last year. Economy.com, in a commentary on their Web site points out that those borrowers had lower equity in 2008 than in 2007. The company goes on to say that a better credit score will not help a borrower who losses a job; so that the FHA could be exposed to rising credit problems.
The 2008 HMDA data also reported that the mortgage business fell sharply last year. Originations to purchase a home fell 33 percent in 2008 versus 2007. Similarly, refinancing business volume dropped 28 percent last year compared to a year earlier.