After the rise of the housing bubble and the subsequent Great Recession resulting in the housing crisis, what has stayed consistent to the housing and mortgage industry has been the conventional, 30-year, fixed-rate mortgage.
According to a research analysis published by Zillow [1], this mortgage has become the bedrock of American housing finance particularly because of its broad appeal. Zillow says that the mortgage understood low, consistent monthly payments makes this loan attractive to home buyers looking for stability. Likewise, the fact that these loans can generally be bought and sold for profit easily on the secondary market also makes it desirable to lenders as well as investors.
Despite the 30-year, fixed mortgage’s desirable and stable conditions, this has been shown to evolve with the change of market forces, demographics and demand. This can especially take place when those changes are just as those experienced during the housing bubble, burst, and beyond. Zillow’s report analyzed the data released recently from Fannie Mae on millions of conventional, conforming mortgages acquired during 2000 all the way to the first quarter of 2015. In doing so they identified key trends among borrowers as well as focused on loan amounts, down payments, creditworthiness, occupancy status and property type.
Zillow’s analysis showed that certain aspects of conventional mortgages have in fact returned to pre-recession patterns but others show new “normal” characteristics. Low down payments have become more popular as lending has become easier and interest rates have fallen. But it is still notes that those with low credit scores typically tend to make larger down payments than those with high credit scores.
Meanwhile, borrowers with low credit scores have essentially disappeared from the market for conventional loans being replace by those with moderate credit. In addition to having higher scores, Zillow notes that among those who qualified for loans during the recession and onward, there is rarely mismatches in credit scores between borrowers and their co-borrowers.
Zillow also found that the trend during the bubble of some high-credit borrowers using multiple loans to afford more expensive homes as well as low income borrowers taking out multiple loans simply to afford a home has also diminished. Instead the trend seen today is that the majority of homebuyers take out only a single mortgage. This is because of federal designation of HCAs that extended conventional loan limits as well as tighter lending, especially to those with poor credit.