In December, the Data & Analytics division of Black Knight Financial Services looked at high loan-to-value (LTV) products – greater than 95% LTV – in light of the GSEs' reintroduction of high-LTV products at the end of 2014, coupled with the 50-basis-point reduction in FHA annual mortgage insurance premiums earlier this year.
Despite the renewed availability of GSE products, the data from the company’s latest Mortgage Monitor Report shows that high-LTV lending is still primarily the province of the FHA/VA.
“High-LTV purchase mortgage originations are up 20% in the third quarter over last year,” said Black Knight Data & Analytics Senior Vice President Ben Graboske. “That's compared to an approximately 13% increase for the purchase market overall. High-LTV products now account for 23% of all purchase originations.”
What's particularly interesting is how heavily this market is dominated by FHA/VA. Back in 2007, the GSEs made up over 45% of high-LTV purchase originations, while FHA/VA lending made up roughly one-third.
“Since 2009, FHA/VA products have made up over 90% of high-LTV purchase originations every year, and the same is true in 2015, even with the GSEs having reintroduced their own 97% LTV products,” said Graboske. “In fact, those products have accounted for less than 3% of all high-LTV originations so far this year.”
“As we reported last month, recent increases in purchase lending have been driven primarily by higher-credit-score borrowers, and these high-LTV products are no exception,” said Graboske. “We've seen average credit scores on high-LTV FHA/VA loans rise six points from last year to 706. Of course, scores for GSE and portfolio high-LTV loans are roughly 35 points higher still.”
The company has experienced annual declines in high-LTV lending among 620-660 credit scores for each of the past six months even though overall high-LTV purchase volumes have risen in each of those months, which may be attributed to tightening credit, said Graboske, or it may be that the FHA
's reduced annual mortgage insurance – which FHA
estimates will reduce borrowers' mortgage payments by $900/year – has enticed some higher-credit borrowers into those FHA