Jaya Dey - Catholic.net...Jaya Dey, Ph.D. Senior Economist Affordable Lending Analytics & Research...
Transcript of Jaya Dey - Catholic.net...Jaya Dey, Ph.D. Senior Economist Affordable Lending Analytics & Research...
#RuralHousingResearch
Jaya DeySenior Economist Affordable Lending Analytics & ResearchFreddie Mac
Overview
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▪ Rural mortgage markets have been a particular concern for policymakers
and researchers.
▪ There is widespread belief that lenders and credit markets in rural areas
differ from urban areas.
▪ How do the borrowers in rural areas differ from urban areas in
• Mortgage market experiences
• Default risk
• Homeownership potential
What is Rural?
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Three broad groups based on
size of largest population
center using USDA’s Rural
Urban Continuum Codes
(RUCC)
▪ Metro (M), Non-metro (NM) and
Completely Rural (CR)
Source: U.S. Department of Agriculture Rural Urban Continuum Code (RUCC) data, 2013.
Population, Housing Unit, Mortgage Originations Shares
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Completely rural counties
constituted only 2 percent of
the U.S. population and housing units.
Source: Census Bureau American Community Survey (ACS) 2010-2014 5-year estimates data for population and housing units by county, and Home
Mortgage Disclosure Act (HMDA) data for first-lien mortgage originations by county.
85.9 83.4 89.4
12.9 14.7 9.7
1.5 2 1
POPULATION HOUSING UNITS MORTGAGE ORIGINATIONS
Metro Non-Metro Completely Rural
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Property and Loan Characteristics
▪ Properties in completely rural are more likely to be
• Manufactured homes
• Loans with shorter terms, higher median LTV and lowest median loan amount
Note: Based on NSMO, 2014 and “Mortgage Experiences of Rural Borrowers in the United States: Insights from the National Survey of Mortgage Originations” (T. Critchfield, J. Dey, N. Mota and S. Patrabansh, 2019).
CharacteristicsAll Mortgages Purchase Mortgages Refinance Mortgages
M NM CR M NM CR M NM CR
(n=5,541) (n=654) (n=345) (n=3,044) (n=348) (n=161) (n=2,497) (n=306) (n=184)
Property Type
Single-Family Detached 83% 86% 86% 82% 88% 89% 84% 85% 83%
Attached 16% 7% 2% 17% 8% 2% 15% 5% 2%
Mobile or Manufactured 1% 6% 9% 1% 2% 5% 1% 10% 13%
Median Terms (in Years) 30 30 30 30 30 30 30 20 15
Median Loan to Value (LTV) Ratio 80 80 80 88 90 95 73 74 73
Median Loan Amount $180,775 $114,000 $107,142 $185,913 $119,250 $105,000 $175,000 $104,475 $108,000
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Borrower Characteristics
▪ Borrowers in completely rural areas are more likely to
• Be older, less diverse, less educated, with lower employment
• Have lower income and credit scores
Note: Based on NSMO, 2014 and “Mortgage Experiences of Rural Borrowers in the United States: Insights from the National Survey of Mortgage Originations” (T. Critchfield, J. Dey, N. Mota and S. Patrabansh, 2019).
Characteristics All Mortgages Purchase Mortgages Refinance Mortgages
M NM CR M NM CR M NM CR
(n=5,541) (n=654) (n=345) (n=3,044) (n=348) (n=161) (n=2,497) (n=306) (n=184)
Median Age 45 45 43 39 39 37 51 49 52
Race/Ethnicity (Non-Hispanic White) 77% 90% 92% 77% 89% 94% 77% 91% 91%
Education
Less than College Degree 36% 54% 51% 33% 47% 46% 40% 62% 57%
College Degree or higher 64% 46% 49% 67% 53% 54% 60% 38% 43%
Household Employment (One or More Full-
Time)87% 83% 81% 90% 86% 86% 84% 79% 75%
Household Income (Less than $50,000) 16% 26% 31% 17% 28% 29% 16% 24% 34%
Median Credit Score 744 725 716 747 729 717 739 720 714
Mortgage Experiences of Rural Borrowers
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Completely Rural Borrowers Paid Higher Interest Rate
𝑃𝑀𝑀𝑆_𝑆𝑝𝑟𝑒𝑎𝑑𝑖,𝑐 = 𝛼 + 𝝆𝑪𝑹𝐶𝑅𝑐 + 𝝆𝑵𝑴𝑁𝑀𝑐 + 𝛽𝑋𝑖 + 𝜀𝑖,𝑐
where 𝑋𝑖: borrower, property and loan attributes
Note: Based on NSMO, 2014 and “Mortgage Experiences of Rural Borrowers in the United States: Insights from the National Survey of Mortgage Originations” (T. Critchfield, J. Dey,
N. Mota and S. Patrabansh, 2019).
Controlled Difference Model
(Percent) County Type Difference (Percent)
M NM - M CR - M CR - NM
All Mortgages 0.22 -0.03 0.14*** 0.16***
Purchase Mortgages 0.19 -0.04 0.23*** 0.27***
Refinance Mortgages 0.27 -0.02 0.05 0.07
Completely Rural Borrowers Less Likely to be Satisfied with Their Mortgages
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Note: Based on NSMO, 2014 and “Mortgage Experiences of Rural Borrowers in the United States: Insights from the National Survey of Mortgage
Originations” (T. Critchfield, J. Dey, N. Mota and S. Patrabansh, 2019).
Overall, how
satisfied were you
with the following?
Controlled Difference Model
County Type Difference
(Percent)(Percent)
Share "Very Satisfied" M NM - M CR - M CR - NM
All Mortgages
Best Terms to Fit Needs 78% 2% -8%*** -10%***
Lowest Interest Rates Qualified 70% 3% -3% -6%*
Lowest Closing Costs 58% 1% -6%** -6%*
Loan Closing Process 66% 0% -8%*** -9%***
Disclosure Documents 65% 1% -8%*** -8%***
Timeliness of Documents 64% 1% -9%*** -11%***
Completely Rural Borrowers Less Familiar with Various Loan Features
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Note: Based on NSMO, 2014 and “Mortgage Experiences of Rural Borrowers in the United States: Insights from the
National Survey of Mortgage Originations” (T. Critchfield, J. Dey, N. Mota and S. Patrabansh, 2019).
How familiar were
you about different
loan features?
Controlled Difference Model
County Type Difference
(Percent)(Percent)
Share "Very Familiar" M NM - M CR - M CR - NM
All Mortgages
Credit History or Score 76% 2% -1% -3%
Interest Rates Available 58% 1% -8%*** -9%***
Mortgage Types Available 48% -2% -9%*** -7%**
Mortgage Process 55% 0% -10%*** -11%***
Down Payment to Qualify 59% 1% -9%*** -9%***
Income Needed to Qualify 57% 0% -8%*** -8%**
Money Needed for Closing 51% -1% -9%*** -8%**
Rural Borrowers More Proactive with Lender Selection
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Note: Based on NSMO, 2014 and “Mortgage Experiences of Rural Borrowers in the United States: Insights from the National Survey of Mortgage Originations” (T.
Critchfield, J. Dey, N. Mota and S. Patrabansh, 2019).
What best
describes your
shopping
process?
Controlled Difference Model
County Type Difference (Percent)(Percent)
M NM - M CR - M CR - NM
All Mortgages
Picked Lender before Loan 71% 0% 4% 4%
Applied Directly to a Lender 63% 9%*** 10%*** 1%
Borrower Initiated Contact 66% 8%*** 12%*** 4%
Considered Multiple Lenders 52% -1% 0% 1%
Applied to Multiple Lenders 23% -2% 0% 3%
Having Established Relationship Important Factor for Lender Selection
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Note: Based on NSMO, 2014 and “Mortgage Experiences of Rural Borrowers in the United States: Insights from the National
Survey of Mortgage Originations” (T. Critchfield, J. Dey, N. Mota and S. Patrabansh, 2019).
How important
were the following
in choosing the
lender you used?
Controlled Difference Model
County Type Difference
(Percent)(Percent)
Share Stating Factor
"Important"M NM - M CR - M CR - NM
All Mortgages
Reputation 71% -4%* 0% 3%
Established Bank
Relationship55% 9%*** 9%*** 0%
Local Office or Branch 49% 8%*** 5% -3%
Agent/Builder
Recommended36% -6%*** -12%*** -6%**
Loan Performance of Rural Borrowers
Duty to Serve (DTS) High-Needs Rural Areas
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Note: Map shading for the rural census tracts of the DTS High-Needs areas. Border colonias includes the rural tracts in the Texas counties of El Paso, Cameron, Hidalgo, Starr, Webb and
Maverick.
We define three broad
geographic areas:
▪ DTS high-needs rural tracts
▪ Other rural tracts
▪ Non-rural tracts
Borrowers from High-Needs Rural Areas More Likely to Default
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0.013
Simple
DifferenceControlled Difference
Note: Based on NMDB, 2012-2015 and “High-Needs Rural Regions: Loan Performance and Opportunities to Serve” (X. Bak, L. Brown and J. Dey 2018).
Linear Probability Model𝐸(𝐷90 = 1|𝑋)𝑖,𝑐 = 𝛼 + 𝝆𝑯𝑵𝑹𝐻𝑖𝑔ℎ_𝑛𝑒𝑒𝑑𝑠_𝑟𝑢𝑟𝑎𝑙𝑐 + 𝜌𝑂𝑅𝑂𝑡ℎ𝑒𝑟_𝑟𝑢𝑟𝑎𝑙𝑐 + 𝛽𝑋𝑖 + 𝜀𝑖,𝑐
1 2 3 (baseline)
Borrower and loan
characteristics
(1) + Area Median
Income, State
dummies
(2) + House price
trend
0.0034*** 0.0032*** 0.0030***
90 days delinquency rate (Mean value)
High-needs rural 0.027
Non-rural 0.014
Refinancers in High-Needs Rural Areas Have Higher Default Risk
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Controlled Difference
Refinancers in high-needs rural areas are generally older and less knowledgeable about mortgage loan features.
Note: Based on NMDB, 2012-2015 and “High-Needs Rural Regions: Loan Performance and Opportunities to Serve” (X. Bak, L. Brown and J. Dey 2018).
4 (baseline) 5 (baseline) 6 (baseline) 7 (baseline)
Conventional Non-Conventional Purchase Refinance
0.0015*** 0.0079*** 0.0008 0.0024***
Borrowers in Other Rural Areas Have Similar Default Risk
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Linear Probability Model𝐸(𝐷90 = 1|𝑋)𝑖,𝑐 = 𝛼 + 𝜌𝐻𝑁𝑅𝐻𝑖𝑔ℎ_𝑛𝑒𝑒𝑑𝑠_𝑟𝑢𝑟𝑎𝑙𝑐 + 𝝆𝑶𝑹𝑂𝑡ℎ𝑒𝑟_𝑟𝑢𝑟𝑎𝑙𝑐 + 𝛽𝑋𝑖 + 𝜀𝑖,𝑐
0.004
Simple
DifferenceControlled Difference
Note: Based on NMDB, 2012-2015 and “High-Needs Rural Regions: Loan Performance and Opportunities to Serve” (X. Bak, L. Brown and J. Dey 2018).
1 2 3 (baseline)
Borrower and loan
characteristics
(1) + Area Median
Income, State dummies
(2) + House price
trend
-0.0002 0.0004 0.0000
90 days delinquency rate
(Mean value)
Other rural 0.018
Non-rural 0.014
Homeownership Potential of Rural Borrowers
Defining “Mortgage Ready”
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We define “Mortgage Ready” as non-mortgage owners of ages 45 and younger,
who have credit characteristics to qualify for a mortgage.
Non-Mortgage Owner (Age ≤ 45)
“Mortgage Ready”
ALL of the following
▪ FICO ≥ 620
▪ DTI ≤ 25
▪ No foreclosures in 84 months
▪ No bankruptcies in 84 months
▪ No severe delinquencies in 12 months
“Mortgage Weak”
ANY of the following
▪ FICO < 620
▪ DTI > 25
▪ Foreclosures in 84 months
▪ Bankruptcies in 84 months
▪ Severe delinquencies in 12 monthsNote: Mortgage readiness – Based on research criteria not actual underwriting.
Non-Rural Areas Have Most Creditworthy Consumers
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Note: Non-rural areas. Based on Freddie Mac calculations using anonymized credit bureau data and Freddie Mac Home Value Explorer data, September 2018.
Other Rural Areas Have Riskier Consumers But Are More Affordable
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Note: Other rural areas. Based on Freddie Mac calculations using anonymized credit bureau data and Freddie Mac Home Value Explorer data, September 2018.
Consumers in High-Needs Rural AreasMost Credit Constrained
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Note: High-needs rural areas. Based on Freddie Mac calculations using anonymized credit bureau data and Freddie Mac Home Value Explorer data, September 2018.
Conclusion
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▪ Existing research indicates rural borrowers typically pay higher interest
rates, are less knowledgeable, familiar, or satisfied with the mortgage
process, and are more likely to default on their mortgages
▪ Potential homebuyers in underserved rural areas are most credit
constrained
▪ Additional research is needed to understand the rural ecosystem
• Future work can delve into and corroborate/dispute these findings
• Need to study manufactured housing in more detail
Jaya Dey, Ph.D.Senior EconomistAffordable Lending Analytics & Research
Rural Research Symposium