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FHA Lending Activity in the Past Decade: A National Overview

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Lending Patterns: The National Picture

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FHA Lending Patterns Nationally and in the Third District States PDF (27 pages, 858 KB)

Total Lending Originations

Table 1 and Chart 4, based on HMDA data, show that total loan originations peaked relatively early in the previous decade, perhaps earlier than is commonly thought. There were approximately 7.9 million total loan originations and approximately $910.8 billion in loan originations in 2000. Total originations then rose, peaking several years later in 2003 at approximately 21.2 million by count or $3.39 trillion in dollar amount. Following the 2003 peak in total lending activity, originations declined by more than 30 percent in total number to approximately 14.9 million, and by more than 24 percent to $2.55 trillion in total dollar amount.3 Following the 2004 declines, both total count and total dollar amount rose slightly in 2005, before continuing to decline in 2006 and 2007, when the problems in the housing market were first widely recognized, followed by an even more extreme drop in 2008. Indeed, in 2008 originations fell below their 2000 number. Following these declines, mortgage originations showed an increase in total count and in total dollar amount in 2009. However, lending levels in 2009 were still below pre-crisis levels, although somewhat higher than at the start of the decade.

Total Home Purchase Originations

Home purchase loans show a somewhat different pattern than that of all originations, peaking somewhat later (Table 2 and Chart 5). In 2000, there were 4.7 million home purchase originations by number, and $617.5 billion such originations in dollar amount. From 2001 through 2005, home purchase originations grew each year, peaking mid-decade at 7.3 million in total number and $1.372 trillion in dollar amount. Following the 2005 peak, total home purchase originations declined sharply from 2006 through 2008, falling to 3.1 million and $646.6 billion. The 2008 level of home purchase originations was lower than in any previous year of the decade. In 2009, total home purchase originations fell further, to 2.7 million, and to $537 billion.

Total Refinance Originations

Home refinance originations show a different pattern than those of home purchase originations (Table 3 and Chart 6). When compared with Table 1, Table 3 suggests that overall trends were driven more by the refinance market than by the home purchase market during the 2000-2009 period. The period was one of historically low interest rates in comparison to the previous decade, and it was also a period of generally rising home prices, at least until the onset of the housing crisis in 2007. Many borrowers were able to extract the increased equity via cash-out refinancing and/or save money on their monthly payments by refinancing at a lower interest rate. In 2000, refinance originations were 2.3 million in total number and $244.8 billion in total dollar amount. In 2001, total refinance originations increased sharply, by 228 percent in total number, to 7.8 million, and by 352 percent in total dollar amount, to $1.1 trillion. In 2002, refinance originations grew again year over year. Following these two years of large increases in refinance origination activity, in 2003 originations grew again, as interest rates dropped sharply, to more than 15 million in total number, and to $2.4 trillion in total dollar amount, reaching their peak for the decade.

Following the 2003 peak, refinance originations declined sharply in 2004, to 7.5 million originations,4 then continued to decline through 2008 to lows of 3.4 million and $710.3 trillion. This was the first time in eight years that home refinance originations were less than 4 million in total number and less than $1 trillion in total dollar amount annually.

In 2009, refinance originations grew by 65.3 percent in total number, to 5.7 million, and by 72.1 percent in total dollar amount, to $1.2 trillion. The increase is likely related to the low interest rates maintained by the Federal Reserve in response to ongoing problems in the economy. However, refinance activity remained well below its level in 2003, the year in which interest rates were at their previous low. That recent refinance activity has been relatively low in the context of recent interest rates may reflect, in part, many borrowers’ inability to take advantage of these rates because their mortgages are underwater.

Overall, mortgage refinance activity was higher than home purchase activity throughout much of the decade, with the exception of 2006, where home purchase originations were slightly larger in terms of both total number and dollar amount. In 2002 and 2003, refinance originations were larger than home purchase originations by a factor of between 2 and 3. Especially in these years, but for nearly all of the decade as well, refinance originations were the dominant factor in determining whether overall mortgage loan originations rose or fell.

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  • 3 The finding that the total number declined faster than the total dollar amount could be associated with higher loan to value (LTV) ratios on loans and increasing house prices.
  • 4 Refinance originations likely peaked earlier than home purchase originations because refinance activity is very sensitive to interest rate trends and the low point in the interest rate before the housing crisis came in 2003.
  • Last update: February 15, 2011