Download - Jaya Dey - Catholic.net...Jaya Dey, Ph.D. Senior Economist Affordable Lending Analytics & Research [email protected] Rural Research Symposium Title PowerPoint Presentation Author

#RuralHousingResearch

Jaya DeySenior Economist Affordable Lending Analytics & ResearchFreddie Mac

Overview

3#RuralHousingResearch

▪ 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?


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


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


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


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


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


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?


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


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?



(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


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?


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


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?



(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


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


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


Controlled Difference

Refinancers in high-needs rural areas are generally older and less knowledgeable about mortgage loan features.


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


Linear Probability Model𝐸(𝐷90 = 1|𝑋)𝑖,𝑐 = 𝛼 + 𝜌𝐻𝑁𝑅𝐻𝑖𝑔ℎ_𝑛𝑒𝑒𝑑𝑠_𝑟𝑢𝑟𝑎𝑙𝑐 + 𝝆𝑶𝑹𝑂𝑡ℎ𝑒𝑟_𝑟𝑢𝑟𝑎𝑙𝑐 + 𝛽𝑋𝑖 + 𝜀𝑖,𝑐

0.004

Simple

DifferenceControlled Difference


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”


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


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


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


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


▪ 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

[email protected]

Rural Research Symposium

Download - Jaya Dey - Catholic.net...Jaya Dey, Ph.D. Senior Economist Affordable Lending Analytics & Research [email protected] Rural Research Symposium Title PowerPoint Presentation Author

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