(Jeff Sorg, OnlineEd) – Stephen Oliner and Edward Pinto, codirectors of the American Enterprise Institute’s (AEI’s) International Center on Housing Risk, announced the inaugural release of the First-Time Buyer Mortgage Share Index (FBMSI), a new objective and transparent measure of the share of mortgages going to first-time buyers. They also announced an index to measure the risk of those loans, the First-Time Buyer Mortgage Risk Index (FBMRI).
The Agency FBMSI (which measures mortgages guaranteed by government agencies) averaged 52 percent over the 12 months ending October 2014. The Combined FBMSI (which includes both government-guaranteed and private-sector mortgages) averaged an estimated 46 percent over the 12 months ending October 2014.
“Discussions about homeownership and credit availability are hampered when not grounded in good measurements of loan availability and risk,” said Pinto. “We developed these new tools to provide accurate information to help inform the conversation.”
The FBMSI is the first time the national first-time buyer share has been calculated using a nearly complete dataset with minimal opportunity for sample error. This is in contrast to the 2014 survey conducted by the National Association of Realtors (NAR), which was based on responses constituting only 0.2 percent of all purchase loans originated during the 12 month survey period and was voluntary, with responses received from only 9 percent of those mailed the 127-question survey.
For the July 2013-June 2014 period covered by the NAR’s survey, the center’s Combined FBMSI had an average value of 45 percent, substantially higher than the NAR’s survey finding that first-time homebuyers constituted 36 percent of purchase loans used to buy a primary residence.
“It is not surprising that the NAR results, which are based on a small and non-random sample, provide an inaccurate picture of the importance of first-time home buyers,” said Oliner. “The FBMSI is as comprehensive as currently possible and will hopefully allow a discussion of the facts on this important issue.”
AEI’s First-Time Buyer Mortgage Risk Index (FBMRI) stood at 14.56 percent in October, up slightly from the average for the prior three months, but up nearly 1 percentage point from a year earlier. The FBMRI is about 3 percentage points higher than the composite National Mortgage Risk Index (NMRI) and about 6 percentage points higher than the repeat homebuyer NMRI.
The higher risk for the mortgages taken out by first-time buyers is largely due to risk layering. In October 2014, two-thirds of first-time buyer mortgages had a combined loan-to-value ratio of 95 percent or higher, and 96 percent had a 30-year term. Facing the combination of little money down and slow amortization, these buyers will have very little home equity for a number of years unless their house appreciates substantially. In addition, about one-fifth of first-time buyers taking out mortgages had a FICO score below 660, the traditional definition of subprime mortgages.
The FBMSI and FBMRI are objective and transparent measures of the first-time buyer share and the riskiness of first-time buyer mortgages, respectively, based on the millions of loans contained in National Mortgage Risk Index (NMRI) database developed by AEI’s International Center on Housing Risk. For more information about the FBMSI, FBMRI, and NMRI, please visit HousingRisk.org.
AEI’s International Center on Housing Risk updates the FBMSI monthly.
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This article was published on December 9, 2014. All information contained in this posting is deemed correct and current as of this date, but is not guaranteed by the author and may have been obtained by third-party sources. Due to the fluid nature of the subject matter, regulations, requirements and laws, prices and all other information may or may not be correct in the future and should be verified if cited, shared or otherwise republished.
Jeff Sorg is a co-founder of OnlineEd®, an online real estate, mortgage broker, and vocational school founded in 1997, where he also serves as Chief Executive Officer, and School Director. Sorg holds vocational and post-secondary school instructor licenses in several states and has authored numerous real estate continuing education and pre-licensing courses and has been awarded the International Distance Education Certification Center’s CDEi Designation for distance education. Memberships include ARELLO (Association of Real Estate License Law Officials), the National Association of REALTORS®, Oregon Association of REALTORS®, and Portland Metro Association of REALTORS®. Awards and service include REALTOR® Emeritus in the National Association, Life Member award in Portland Metro Association and Chairperson of the Oregon Real Estate Forms Committee.
OnlineEd® provides real estate, mortgage broker, insurance, and contractor pre-license, post-license, continuing education, career enhancement, and professional development and designation courses over the Internet.