About five months after Fannie Mae and Freddie Mac expanded their loan-to-value (LTV) offerings, many lenders are optimistic they will benefit from the products at some point — but those lenders have yet to see much impact on mortgage loan origination volume, according to a recent Fannie Mae commentary.
In December, the government-sponsored enterprises (GSEs) began offering certain loans with a maximum LTV — a financial term commonly used by lenders to represent the ratio of the first mortgage lien as a percentage of the total appraised property value — of 97 percent. A month later, the Federal Housing Administration (FHA) reduced annual mortgage insurance premiums (MIPs) by 0.5 percent on new loans. The goal of these initiatives was to expand access to mortgage credit and make monthly mortgages more affordable to qualified and creditworthy borrowers.
But according to Fannie Mae’s Economic & Strategic Research Group, a survey of senior mortgage executives in February revealed that while a majority of lenders surveyed think the GSEs’ 97 percent LTV products and the FHA’s MIP reduction will be good for them and for consumers, a third of those polled said they do not expect these efforts to increase mortgage originations.
According to the survey, which was conducted as part of Fannie Mae’s quarterly Mortgage Lender Sentiment Survey (MLSS), 81 percent of institutions that responded reported that they plan to offer the GSE-eligible loans sometime this year, but the expected impact on their own firm’s origination volume is more muted than their expectations for the impact on the overall mortgage market in the future. Of those planning to offer the loans, 44 percent said they expect them to “somewhat increase” their origination volume, and 54 percent said they expect volume to remain about the same.
Since some consumers who take on GSE 97 percent LTV loans are required to take homeownership counseling programs, Fannie Mae also examined lenders’ views on these programs. The vast majority, or 91 percent, of lenders reported offering or referring consumers to homeownership education and counseling programs, with most citing a desire to help borrowers better manage their finances. Midsized and smaller lenders found less value in homeownership education and counseling programs, according to the survey.
As for lenders’ views on the value of homeownership education and counseling programs, those results were also mixed: 33 percent said they have value; 36 percent said they do not; and 31 percent were neutral.
“Given the mixed perceptions of lenders about the benefits from prepurchase counseling and the academic research suggesting that it is unclear whether counseling delivers a meaningful improvement in outcomes, there appears to be an opportunity to investigate whether it is possible to enhance counseling strategies to generate, improve and more clearly demonstrate consumer, lender and investor benefits,” wrote Steve Deggendorf, director of business strategy for Fannie Mae’s Economic & Strategic Research Group, in a commentary about the survey’s results.