Alt-A Business Doubles

The Office of Federal Housing Enterprise Oversight report “The Mortgage Markets and the Enterprises in 2005” found that record levels of nontraditional mortgage program originations combined with low interest rates were the primary reason the “housing sector remained strong and continued to propel the U.S. economy” last year.

Single-family mortgage originations hit the second highest volume ever — $3.1 trillion — a reported 26 percent below the record high of 2003, according to the report written by Valerie L. Smith, Forrest Pafenberg, and Laura Goren of the Office of Policy Development and Research.

It was conventional mortgage loans, up nine percent, that made up more than $3 trillion of the total, OFHEO said. Federal Housing Administration and Department of Veterans Affairs originations fell 39 percent and 30 percent respectively, to comprise $83 billion in volume for 2005.

Refinance loans were down from 46 percent to 44 percent, with almost two-thirds of those including cashout during the second half of the year, the report said. Cashouts were up from 50 percent during 2004.

Mortgage rates were reduced an average of eight percent, and the median loan term grew by two and a half years in 2005, according to OFHEO.

The subprime market also grew, exceeding conforming conventional volume by a wide margin, the report said. Subprime originations rose 16 percent to $625 billion and comprised 20 percent of the total originated for 2005.

Alt-A originations reportedly jumped 95 percent from 2004 levels representing 12.5 percent of the total originations and jumbo mortgages were up less than one percent, but responsible for 18.3 percent of that total.

Residential mortgage debt outstanding rose almost 14 percent to $9.9 trillion, the biggest jump since 1986, the report noted.

However, the equity stake for a majority of homeowners remained unchanged from last year’s 75 percent, the report indicated. The proportion of loans with loan-to-value ratios of 90 percent or greater has dropped to 16 percent.

And as the market shifted in 2005, consolidation continued.

Report data indicated the top 25 lenders were responsible for the majority of single-family mortgages originated (83 percent, up four percent from the year prior) however, it would not be accurate to attribute that volume solely to the top 25.

“The top lenders use three channels to product loans — retail, broker and correspondent — and two of those channels involve other lenders.”

For example, of the $491 billion in loans originated in 2005 by Countrywide, more than half “was sourced to it by other originators,” the report explained.