Mortgage volume rises in first half of 2005

The survey addresses single-family mortgage originations for the first and second quarters of 2005, according to an MBA news release.

Data from the survey provided evidence of increased popularity of nontraditional products such as interest-only or adjustable-rate mortgages.

Consumer shift

The MBA survey, which includes data from more than half of the mortgages originated last year, showed that the dollar volume of first-mortgage originations increased 10 percent from the second half of 2004 to the first half of 2005. The survey provided evidence of a shift in consumer demand from ARM products to interest-only and Alt-A products. Alt-A is a mortgage risk categorization that falls between prime and sub-prime, but is closer to prime and also is referred to as A-minus.

While the adjustable-rate mortgage share of originations, excluding interest-only loans decreased from 46 percent to 36 percent, the share of originations that were interest-only loans increased from 17 percent to 23 percent and the share of originations that were Alt-A loans increased from 8 percent to 11 percent.

“With the difference in ARM rates and fixed rates narrowing, consumers have shifted from traditional ARMs to nontraditional products such as option ARMs and interest-only loans,” said Doug Duncan, MBA’s chief economist and senior vice president. “While these new products provide consumers with a wide range of choices to meet their cash flow needs and risk tolerances, borrowers need to be vigilant to ensure that they prudently measure and manage the additional risk of these new products.”

Survey findings

Key findings of the survey include the following:

• More than nine of 10 interest-only loans originated during the first half of 2005 are adjustable-rate products; the remaining loans were fixed-rate products.

• Among all survey respondents, option ARM originations were 7 percent of dollar originations and 4 percent of the loan count during the first half of 2005. These percentages are likely understated as many survey respondents did not report their option ARM volume. Among survey respondents that did report option ARM data, option ARM loans comprised 16 percent of their dollar originations and 10 percent of their loan count.

• The vast majority of loans (88 percent) in the first half of the year were for owner-occupied homes, but the percentage of loans for nonowner-occupied properties was significant (12 percent). This finding is consistent with 2004 Home Mortgage Disclosure Act data, which revealed that more than 11 percent of 2004 originations were for nonowner-occupied properties.

• While nearly half (48 percent) of all loans originated were agency-eligible, they represented only 38 percent of the origination dollar volume. Agency-eligible loans are mortgage loans that conform to the size and credit quality guidelines and would be available for sale to Fannie Mae and Freddie Mac under any of their loan programs.

• From the second half of 2004 to the first half of 2005, reverse mortgage originations increased 28 percent, with FHA’s home equity conversion mortgages increasing by 31 percent and other reverse mortgages up 8 percent.

• Compared with the last half of 2004, in the first half of 2005, origination volume of all second mortgages increased 12 percent, closed-end seconds increased 37 percent and open-end seconds or home equity lines of credit increased 20 percent (based on companies submitting data for both time periods).

• In the first half of 2005, 82 percent of second mortgage originations were home equity lines-of-credit loans, compared with 18 percent for closed-end loans. Home equity line of credit origination volume refers to the size of the line, not the drawn amount.

Survey samples

The survey included more than 110 companies. Based on internal market estimates, sample coverage included more than 50 percent of total market originations of first and second mortgages. All trends were based on data from repeater companies – companies that reported data for both the second half of 2004 and first half of 2005. More detailed survey results from the MBA study are only available to participants.

MBA is a national association that represents the real estate finance industry. For additional information, visit MBA’s Web site at www.mortgagebankers.org.

[[In-content Ad]]