First-time home buyer loans drove MBS issuance in 2023

In an otherwise bad period for originations, home purchase mortgages made to first-time home buyers made up more than half of the agency securitization issuances — those from Fannie Mae, Freddie Mac and Ginnie Mae — last year, according to Intercontinental Exchange.

This is the highest share in the 10 years that ICE and predecessor organization Black Knight has tracked this data, the March Mortgage Monitor said.

"Looking back, last year's market was dominated by purchase lending, with loans to buy homes making up 82% of a historically low number of originations," said Andy Waldon, ICE vice president of enterprise research strategy, in a press release. "While it remains a tough market for prospective purchasers, our eMBS agency securities database revealed that first-time homebuyers actually made up 55% of all agency purchase mortgages last year."

Only two periods since 1995 have had fewer than 1 million first-lien loans originated — the first and last quarters of 2023, he said.

A separate report from Attom Data Solutions, which is broader in scope because it includes home equity lending, found 1.35 million units produced for one-to-four family residential properties. That was down compared with 1.56 million units in the third quarter and 1.61 million units in the fourth quarter of 2022.

"Multiple powerful forces continued to conspire against the mortgage industry during the fourth quarter, slicing back huge portions of their business," said Rob Barber, Attom's CEO, in its press release.

With interest rates flat for much of the first quarter, Barber saw some of the same signs that appeared during the peak buying season in 2022, with increases in purchase, refinance and home equity line of credit lending.

"But the fourth-quarter numbers revealed continued gloomy times for lenders, no matter how you sliced the pie," Barber said.

The first-time home buyer market cut through that gloom, but that large share also has some concerns of its own, Walden said.

First-time buyers made up 39% of all government-sponsored enterprise deals in 2023, 12 percentage points higher than any other vintage in the past decade.

"The market in which these folks purchased their first home was one of record house prices, ballooning down payments, rising rates and elevated [debt-to-income ratios]," said Walden. "Given record exposure to first-time home buyer loans, it'll be worth watching the performance of this cohort very closely moving forward, particularly for those invested in 2023 agency MBS."

Ginnie Mae MBS issuances involving first-time home buyers had a 52% share, which ICE said was also a record.

Overall, three-quarters of total 2024 volume is likely to be from purchases, but Walden pointed to a 19% increase in refinance activity in January as a positive sign.

According to Optimal Blue (sold by Black Knight as a condition of its acquisition by ICE), January saw a 30% increase in cash-out refi rate locks and a 20% rise for their rate and term cousins. But that was still a small share of the market, just 17%, the Optimal Blue data reported.

"We noted last month that if industry rate projections hold firm, we could see a mini surge of refi activity around the 2023 vintage by the end of 2024," Walden said. "Even the relatively slight rate pullbacks of December and January spurred a growing number of homeowners to refinance."

But servicers are doing a poor job of recapturing those refinancing borrowers, he continued, stating that they kept just one of every five such customers in Q4 2024, a 17-year low.

Nonbank servicers did a better job, with a retention rate of 27%, while banks retained only one in 10, ICE said.

"Providing an exemplary servicing experience is critical to reversing this trend, as is effectively identifying and engaging with customers likely to refinance," Walden said. "When they have the opportunity to serve that customer, lenders need to be sure the front-end of the process is smooth as well."

ICE's own data found the time from when the borrower locks the rate to when the loan closed reached a four-and-one-half year low in January.

"In addition to enhancing the consumer experience, that also reduces hedging timelines," Walden said. "Those dynamics are tied tightly to the rate environment and can turn on a dime. Should rates fall, and the market shifts more heavily to refis, hedging times could increase as well — raising associated hedge duration risk."