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  • #RuralHousingResearch

  • Jaya Dey Senior Economist Affordable Lending Analytics & Research Freddie 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?

    4#RuralHousingResearch

    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

    5#RuralHousingResearch

    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

  • 6#RuralHousingResearch

    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).

    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)

    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

  • 7#RuralHousingResearch

    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

  • 9#RuralHousingResearch

    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

    10#RuralHousingResearch

    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

    11#RuralHousingResearch

    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

    12#RuralHousingResearch

    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

    13#RuralHousingResearch

    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

    Relationship 55% 9%*** 9%*** 0%

    Local Office or Branch 49% 8%*** 5% -3%

    Agent/Builder

    Recommended 36% -6%*** -12%*** -6%**

  • Loan Performance of Rural Borrowers

  • Duty to Serve (DTS) High-Needs Rural Areas

    15#RuralHousingResearch

    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

    16#RuralHousingResearch

    0.013

    Simple

    Difference Controlled 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 Model 𝐸(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

    No