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 products.