Percentage of Subprime Loans Used by First-Time Home Buyers Up During the Second Half of 2006

The percentage of subprime loans being used by first-time home buyers increased from 12 percent to 15 percent in the second half of 2006 according to the Mortgage Bankers Association`s (MBA`s) Subprime Mortgage Originations Survey released today.  The percentage of subprime loans used for repeat and first-time home purchase increased from 46 percent to 47 percent. 

Key findings from the survey include (percentages are based on dollar volume of originated loans):

For the second half of 2006, 55 percent of subprime originations were for refinance purposes unchanged from the first half of 2006 (see Chart 1).  Among subprime refinances, 87 percent were for cash-out purposes compared with 75 percent for the first half of 2006. However, in the first half of 2006, 12 percent of refinances were reported as "unknown" or "other purposes" and thus, the refinance for cash-out purposes in the first half of 2006 could very well be higher.

Based on loan count, 32 percent of subprime purchase loans were made to a first-time home buyer, up from 25 percent in the first half of 2006.  

The average loan amount for subprime loans in the second half of 2006 was $202,295, only 1 percent higher than the average loan amount for subprime loans of $200,167 in the first half of 2006.

Almost three-fourths, or 72 percent, of subprime originations came through the broker channel in the second half of 2006, an increase of 3 percent from the first half of 2006.

Adjustable Rate Mortgage (ARM) loans (including Interest Only ARM Loans) comprised 75 percent of subprime originations in the second half of 2006, versus an ARM share of 67 percent of subprime originations in the first half of 2006 (see Chart 2).

Owner occupied homes represented 93 percent of subprime originations in the second half of 2006 versus 92 percent in the first half of 2006 (see Chart 3).

The average loan amount for second mortgages in this half was $35,506, an increase from $33,555 in the first half of 2006. The increase in the average loan amount along with the rise in the number of second mortgage originations was driven largely by a sharp increase in closed-end loans.  
This is the third report on subprime mortgage originations. The inaugural report covered subprime origination data from the second half of 2005. Thirteen subprime companies participated in this survey, including many of the top 10 subprime originators.  The subprime company information includes origination data from companies that originate at least 50 percent subprime or ones that could break out their subprime originations separately. 

The Mortgage Bankers Association (MBA) is the national association representing the real estate finance industry, an industry that employs more than 500,000 people in virtually every community in the country.  Headquartered in Washington, D.C., the association works to ensure the continued strength of the nation`s residential and commercial real estate markets; to expand homeownership and extend access to affordable housing to all Americans. MBA promotes fair and ethical lending practices and fosters professional excellence among real estate finance employees through a wide range of educational programs and a variety of publications. Its membership of over 3,000 companies includes all elements of real estate finance: mortgage companies, mortgage brokers, commercial banks, thrifts, Wall Street conduits, life insurance companies and others in the mortgage lending field. For additional information, visit MBA`s Web site: www.mortgagebankers.org.

Aleis Stokes (202) 557-2741    astokes@mortgagebankers.org