ICE Mortgage Monitor: First-Time Homebuyers Make Up Record 47% of GSE Purchase Loans, 39% of All GSE Securitizations in 2023
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Insights
The data indicating that first-time homebuyers (FTHBs) comprise the highest share of agency purchase security issuance in a decade suggests a significant shift in the composition of the housing market. This shift towards FTHBs, who traditionally have higher front-end debt-to-income (DTI) ratios, implies an increased risk profile for mortgage-backed securities (MBS) investors. As FTHBs are more sensitive to economic downturns due to their relatively higher financial leverage and lower credit scores, the performance of these securities could be more volatile.
Furthermore, the increase in rate/term refinances as a result of slight interest rate decreases indicates a responsive market. However, the low retention rates by servicers highlight a competitive landscape where customer loyalty is not guaranteed. This could lead to increased marketing and operational costs for servicers as they attempt to retain refinancing homeowners.
Lastly, the shortening of the number of days from rate lock to close reflects operational efficiencies in the lending process but also necessitates careful hedging strategies to mitigate the risk associated with interest rate fluctuations.
The high proportion of FTHBs in the agency MBS market could potentially affect the demand for housing and related services. Companies that cater to first-time homebuyers, such as affordable home builders, mortgage insurers and real estate service providers, might experience increased demand for their offerings. Conversely, luxury home builders and sellers may see a relative decrease in demand as the market tilts towards more entry-level buyers.
The potential for a rebound in refinance lending if rates move lower could benefit mortgage lenders and refinancing services. However, the historically low retention rates suggest that customer loyalty programs and competitive offerings will be crucial for businesses looking to capitalize on any surge in refinancing activity.
The trend of FTHBs driving the purchase market can be seen as a reflection of broader economic forces, such as demographic shifts and the current state of affordability in the housing market. High DTIs and lower credit scores among FTHBs could be symptomatic of wider issues such as income stagnation and rising living costs. The impact on the economy could be mixed; while increased homeownership among FTHBs may stimulate economic activity through related purchases and services, it also raises concerns about the financial resilience of this group and the potential for increased defaults should economic conditions deteriorate.
Moreover, the sensitivity of the mortgage market to interest rate movements underscores the importance of monetary policy on housing demand. The Federal Reserve's decisions on interest rates could therefore have significant implications for the housing market and the broader economy.
- Though originations hit a 30-year low in 2023, ICE eMBS data shows first-time homebuyers (FTHB) made up the highest share of agency purchase security issuance in at least 10 years
- In 2023’s
- The impact is most pronounced among GSE securities, in which FTHB purchase loans account for
- ICE data shows FTHBs have higher average front-end debt-to-income (DTI) ratios, but back-end DTIs similar to repeat buyers, spending more on housing but less on other forms of debt
- While demand in the mortgage market continues to track closely with interest rate movements, recent periods of easing have highlighted the potential for a rebound in refinance lending if rates move lower
- With the ICE US Conforming 30-year Fixed Mortgage Rate Lock Index showing January rates averaging
- As noted last month, industry rate predictions would have millions of recent borrowers in the money for a refi by the end of 2024, yet servicers’ retention of such borrowers hit a 17-year low in Q4 2023
- According to ICE Market Trends data, the number of days from rate lock to close matched a 4.5 year low in January, shortening secondary market hedging times
Andy Walden, ICE Vice President of Enterprise Research Strategy, explains that one byproduct of such low volumes is a significantly altered makeup of recent agency mortgage-backed security (MBS) issuance.
“Since 1995, only two quarters have seen fewer than 1 million first lien mortgages originated,” Walden said. “The first was Q1 2023, and Q4 the second. Looking back, last year’s market was dominated by purchase lending, with loans to buy homes making up
“In fact, FTHB purchase loans accounted for an exceptionally high share of all issuance activity last year. They made up
Leveraging ICE Market Trends origination data sheds further light on FTHB trends. While on average, FTHBs have higher front-end DTIs than repeat buyers, their back-end DTIs are more comparable. FTHBs spend a greater share of their income on housing than repeat buyers but pay less on other forms of debt in comparison. While credit scores remain elevated among conventional purchase loans overall, the average FTHB has a 9-point lower credit score than the average repeat buyer. The delta widens among VA purchase loans, with the average FTHB credit score (709) in January 23 points below that of the average repeat buyer (732). Interestingly, FHA loans, the choice for many lower credit score buyers, have broadly the same average credit scores among both first time and repeat buyers.
Demand in the mortgage market continues to closely follow rate movements and remains largely purchase driven. With interest rates averaging
“We noted last month that if industry rate projections hold firm, we could see a mini surge of refi activity around the 2023 vintage by the end of 2024,” Walden continued. “Even the relatively slight rate pullbacks of December and January spurred a growing number of homeowners to refinance. Demand is clearly there when rates cross certain thresholds and, if current rate forecasts hold true, we expect that demand to increase throughout the year. Unfortunately, when it comes to retaining the business of refinancing homeowners, the industry has a lot of ground to make up. Servicers retained just one of every five such borrowers in Q4 2024, a 17-year low.
“Providing an exemplary servicing experience is critical to reversing this trend, as is effectively identifying and engaging with customers likely to refinance. And when they have the opportunity to serve that customer, lenders need to be sure the front-end of the process is smooth as well. To that point, we did see the number of days from rate lock to close hit a 4.5 year low in January. In addition to enhancing the consumer experience, that also reduces hedging timelines. Those dynamics are tied tightly to the rate environment and can turn on a dime. Should rates fall, and the market shifts more heavily to refis, hedging times could increase as well – raising associated hedge duration risk. Industry participants would do well to develop a deep understanding the complexities of this evolving market to capitalize on opportunity and minimize risk.”
Much more information on these and other topics can be found in this month’s Mortgage Monitor.
About Mortgage Monitor
ICE manages the nation’s leading repository of loan-level residential mortgage data and performance information covering the majority of the overall market, including tens of millions of loans across the spectrum of credit products and more than 160 million historical records. The combined insight of the ICE Home Price Index and Collateral Analytics’ home price and real estate data provides one of the most complete, accurate and timely measures of home prices available, covering
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FAQ
What does ICE's March 2024 Mortgage Monitor Report reveal about mortgage originations in 2023?
What percentage of agency securities issuance did first-time homebuyers make up in 2023?
What was the share of first-time homebuyer purchase loans in GSE securitizations in 2023?
What was the average front-end DTI ratio of first-time homebuyers compared to repeat buyers?
What percentage of January refinance activity was made up of rate/term refinances?
