Wholesale Access Completes Study of Second Mortgages
For Release September 1, 2006
Wholesale Access recently completed its first study of the home equity business and industry since 2002. The report, titled “Second Mortgage Market Intelligence,” collects much data about HELs and HELOCs, including outstandings, origination volumes, volumes by channel, growth in HELOCs at commercial banks, product features and loan parameters, seconds and the secondary market, margins and pricing behavior, draw behavior, average loan size, piggybacks, tying firsts and seconds, best practice lenders, distribution by state, growth projections by state (to 2011), the relationship between Fed Funds and second mortgage volume and something called “future state,” meaning prospects for change, innovations and likely new developments.
In addition to the narrative that discusses all of the aforementioned topics, the study includes 17 charts containing the data used for the analysis. Among them are charts of HELs and HELOCs by loan quality and FICO scores. Wholesale Access also interviewed major second mortgage lenders, broker and correspondent originators, investment bankers, analysts, mortgage insurers and rating agencies to ascertain what was known and by whom. Data was also drawn from other recent Wholesale Access studies, including Mortgage Brokers 2004, production revenue and expense data (1993-2005) and Mortgage Lenders 2003. The study was prepared by David Olson and Dan Balkin. They spent six weeks collecting, compiling, assembling, and examining the data.
According to David Olson, some of the major findings were: “While originations of residential mortgages have plummeted from nearly $4 trillion in 2003 to $2.4 trillion in 2006 and a projected $2.2 trillion in 2007, the volume of second mortgages has continued to rise. The area of greatest strength is closed-end loans used as piggybacks. In 2007, we project consumers doing stand-alone seconds to take more equity out of their homes rather than refinancing their first lien. Brokers have become more active in this channel.”
What Dan Balkin found most interesting was that, “In a few short years home equity has gone from a simple retail bank product destined for portfolio to a complex market of many products, production in multiple channels and an array of secondary market executions. Given concerns about home prices, consumer financials and any risks associated with ‘nontraditional’ first mortgages, home equity lenders must be careful in their practices and policies.”
In 4Q06, Wholesale Access will initiate a study that aims to add the micro data by firm to the home equity database and to benchmark (measure) the revenue and expense structure of a dozen or so major home equity lenders. Wholesale Access has prepared two detailed questionnaires, one for retail and the other for wholesale, to collect firms’ numbers.
Wholesale Access Mortgage Research & Consulting, Inc. is a research, advisory and publishing company, founded in 1991 by David Olson and Tom LaMalfa and focused on mortgage finance. In addition to two separate benchmarkings, the firm does various research projects. Current study topics include the home equity market and minority lending. In May 2005 the company completed a ground-breaking study of the Alt-A market to measure the market’s size, types of products. Wholesale Access has completed seven studies of the mortgage brokerage business since 1991. For further information, call (410) 772-1161 or visit the website at www.wholesaleacccess.com.