In my previous blog, I wrote about the drivers of Fannie Mae’s increased purchasing activity. This blog will explore the extent to which that growth was driven by declining interest rates.
I want to show a chart that distinguishes transactions based on whether the HMDA-reporting institution is doing business with a third party, but first want to define a couple terms:
- No third party involved indicates an application that was submitted to and initially payable to the HMDA reporter.
- Third party involved means that the application was submitted to and/or initially payable to a third-party entity which is not the HMDA-reporting institution.
The reasons for bifurcating the market are: 1) lenders often cite third-party relationships as an explanation for differences in loan costs that consumers pay, and 2) consumers like to keep track of whether getting a loan through a third party will generally result in more favorable loan terms.
The figure below includes only conventional, conforming, consumer-purpose, 1st lien, 1-4 family originations that were purchased by Fannie Mae. The seven transaction types that are described together account for 89.2% of Fannie Mae’s 2020 purchases of loans that were originated by HMDA reporters (3.30 million of 3.69 million).
The figure shows on the x-axis a decrease in average interest rates on 30-year fixed-rate loans, and on the y-axis you can see the corresponding percent increase in unit loan volume in 2020.
Figure 1: Volume change by average 30-year fixed interest rate decrease, 2019-2020, for select transaction types.
Note that a 100% increase indicates a doubling of purchases. For example, the uppermost point, which is next to a thick blue box, indicates that for principal residence rate/term refinancings with no third party involved, there was an 85.9 basis point drop between 2019 and 2020, and the loan volume increased by 434.5%, meaning more than a five-fold increase.
As I wrote in my previous blog, all of this information is available at your fingertips with LendingPatterns™. This should make clear that LendingPatterns™ is a powerful and robust tool. Regardless of the size of the 2020 dataset, LendingPatterns™ gives you the ability to quickly summarize large quantities of data, as well as the filters to help you make sense of the data.
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