Almost 40% of all purchase loan originations have low downpayments but Black Knight’s Data & Analytics Executive Vice President Ben Graboske said that, despite the rise, it does not necessarily mean a return to the risky behavior of the past.
“The bulk of the growth has not been among the various 3%-or-less down payment programs that have been reintroduced in the last few years, but rather in five-to-nine- percent down payment mortgages. This segment grew at twice the rate of the overall purchase market in late 2016, whereas lending with down payments of less than five percent grew at about the market average,” he said.
He added that the credit risk profile of borrowers with low downpayments is not the same as in the years leading up to the financial crisis.
“At that time, half of all low-down-payment purchase originations involved ‘piggyback’ second liens, as opposed to a single high-LTV first lien mortgage. It’s also worth noting that while the total share of purchase lending going to borrowers putting less than 10 percent down was relatively similar then to what we see today, today’s low-down-payment mortgage products and secondary risk characteristics are markedly different,” Graboske explained.
He noted that ARMs were widespread among low downpayment loans pre-crisis but are almost non-existent for high LTV loans today. Credit scores are also on average 50 points higher than those who borrowed in 2004-2007, 60 points higher for those with less than 5% down.
The performance of high-LTV loans is also better now than it was pre-crisis with delinquencies remaining low
More market update:
Data from Black Knight Financial shows that the number of purchase mortgages with downpayments below 10% has reached a 7-year high.