Conventional Loans Near 60% of the 1.8 Million Loans with a DTI over 43 Percent

Non-bank lenders have a lion’s share of high-DTI loan originations at 70%.

By Yanling Mayer Mortgage Finance

Since the qualified mortgage (QM) rule went into effect in 2014, comprehensive data to measure the share of high-DTI lending under QM (loans with a debt-to-income ratio over 43 percent) has been difficult to gather.  It often has to be estimated based on sources of limited loan-level data.[1]

However, this process has changed with the revisions to the Home Mortgage Disclosure Act rule that mandated reporting of new data points, including debt-to-income ratio, at the beginning in 2018.

The recent release of the 2019 HMDA data made it possible to gauge the financing demand by high-DTI borrowers, using the most comprehensive and up-to-date loan-level origination data.[2]  With the much anticipated impending expiration of the GSE patch, the latest 2019 data sheds light on the scale of mortgage financing needs by consumers who may be affected by the GSE patch’s expiration, or in the near term, by the transition from the QM rule to a priced-based measure under the Consumer Financial Protection Bureau’s new rule making. The data points below offer a glimpse into the originations and distributions of high-DTI loans across different loan types, loan purposes, lender types, securitization, and potentially much more.

Figure 1: Nearly One-in-Four First-lien, Single-Family Mortgage Originations Are High-DTI Loans
Figure 1: Nearly One-in-Four First-lien, Single-Family Mortgage Originations Are High-DTI Loans
Source: CoreLogic
© 2020 CoreLogic,Inc., All rights reserved.

Of the 7.3 million first-lien loans on one- to four-unit single-family property (including manufactured homes), approximately 1.8 million have a DTI above 43 percent, representing 24.8 percent of total originations.  Purchase loans make up the majority of all high-DTI originations, representing 62.4 percent of 1.8 million high-DTI loans. The share of high-DTI loans varies by loan purposes as well.

Figure 2: Conventional Loans Near 60% of High-DTI Loan Originations; 1-in-2 FHA Loans Are High DTI Loans
Figure 2: Conventional Loans Near 60% of High-DTI Loan Originations; 1-in-2 FHA Loans Are High DTI Loans
Source: CoreLogic
© 2020 CoreLogic,Inc., All rights reserved.

There are 1.07 million high-DTI conventional loans, representing 58.9 percent of total high-DTI originations, and the remaining 0.75 million (41.1 percent) are federally insured loans including FHA, VA, and USDA loans. The share of high-DTI loans is much higher in the origination of federally insured loans than in conventional loans. This is due to federally insured or guaranteed loans being exempt from the maximum DTI threshold in the QM regulation.  Nearly one-in-two FHA loans have a DTI over 43 percent.

Figure 3: A Lion’s Share of High-DTI Loans Are Originated by Nonbank Lenders
Figure 3: A Lion’s Share of High-DTI Loans Are Originated by Nonbank Lenders
Source: CoreLogic
© 2020 CoreLogic,Inc., All rights reserved.

The originations of high-DTI loans vary widely across different bank and non-bank lenders.  In 2019, independent mortgage companies originated 1.18 million high-DTI loans, representing 64.8 percent of total high-DTI originations.  Combined with the loans originated by the mortgage business subsidiaries of banking institutions, these nonbank lenders are responsible for 70 percent of high-DTI originations.  As a percentage of their own originations, nearly 30 percent of non-bank lenders’ originations are made to high-DTI borrowers, with ratios of 17.9 percent for bank lenders.

Figure 4: Nonbank Lenders’ High-DTI Lending: 60% of Conventional and 88% of Federally Insured High-DTI Loans
Figure 4: Nonbank Lenders’ High-DTI Lending: 60% of Conventional and 88% of Federally Insured High-DTI Loans
Source: CoreLogic
© 2020 CoreLogic,Inc., All rights reserved.

Non-bank lenders’ high-DTI lending dominates the conventional as well as federally insured loan market at 60 percent and 88 percent of the market share, respectively.  For both bank and non-bank lenders, the share of high-DTI loans is lower in the origination of conventional loans (15.6 percent to 22.3 percent), but much higher in the origination of federally insured loans (43.9 percent to 52 percent).

Figure 5: Private-Label Securitization of High-DTI Loans Is Only 2.5% of the Sector
Figure 5: Private-Label Securitization of High-DTI Loans Is Only 2.5% of the Sector
Source: CoreLogic
© 2020 CoreLogic,Inc., All rights reserved.

The securitizations of high-DTI loans are based on reported purchaser type in the 2019 HMDA data.[3]  Of those, 57 percent are sold to the GSEs, 40.5 percent are placed into Ginnie Mae MBS, and 2.5 percent in private label securitizations.  Shares sold to the GSEs or placed in the Ginnie Mae MBS pools track closely with those shown in Figure 2, as 58.9 percent are high-DTI conventional loans and 41.1 percent are federally insured loans.

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© 2020 CoreLogic, Inc. All rights reserved.

[1] Using mortgage securitization data, a 2018 Urban Institute study estimated that high DTI loans (loans with a DTI over 43 percent) accounted for about 20% of GSE-backed loans and 51.5% of federally-insured FHA. https://www.urban.org/sites/default/files/publication/98949/qualified_mortgage_rule.pdf

[2] According to the CFPB, 2019 HMDA covers about 88 percent of total closed-end originations in the U.S. https://files.consumerfinance.gov/f/documents/cfpb_2019-mortgage-market-activity-trends_report.pdf

[3] Loans originated towards the end of 2019 but have not been placed into the Ginnie Mae MBS pools or purchased by the GSEs by 12/31/2019 are typically not reported as “purchase” by Ginnie Mae or the GSEs.  For instance, only about a half of federally insured high DTI loans reported in Figure 2 are shown here as being placed into Ginnie Mae MBS.