On March 1, the Consumer Financial Protection Bureau released a report concerning mortgages made to members of the U.S. armed forces and veterans purchasing a first home. It is part of a series of quarterly reports the CFPB will issue focusing on consumer credit trends. This Quarterly Consumer Credit Trends report highlights trends among first-time homebuying servicemembers from 2006 through 2016 and compares them with trends of first-time homebuying non-servicemembers. Some of the key trends found by the CFPB are the following:
- Servicemembers increased their reliance on U.S. Department of Veterans Affairs guaranteed home loans by 33% between 2007 and 2009, equaling 63% of servicemembers using VA mortgages by 2009. While the report identified a comparable trend of non-servicemembers increasing their reliance on government-sponsored loans going into 2009, non-servicemembers decreased their reliance on government-sponsored loans thereafter. Servicemember reliance on VA mortgages continued to increase and was at 78% as of 2016.
- The increased use of VA mortgages by servicemembers reflected a larger decrease in use of conventional loan products between the years of 2006 and 2009 by all consumers, both servicemember and non-servicemember. At their peak during the years of 2006 through 2009, conventional mortgages served 60% of servicemembers and 90% of non-servicemembers. As of 2016, conventional loans only served 13% of servicemembers. Non-servicemembers’ use of conventional mortgages dropped to 41% as of 2009 but increased to 60% by 2016.
- The median VA mortgage amount among servicemembers “increased in nominal dollars from $156,000 in 2006 to $212,000 in 2016.” This figure closely follows a similar increase in the median amount that non-servicemembers have borrowed using conventional mortgages. The report notes, however, that the median loan amount of Federal Housing Administration (“FHA”) and U.S. Department of Agriculture (“USDA”) mortgages among servicemembers grew more slowly.
- During 2006 and 2007, servicemembers with nonprime credit scores experienced early delinquencies (a mortgage 60 days or more delinquent within a year of origination) on VA mortgages at a rate between 5% and 7%, while collectively all nonprime FHA and USDA mortgages (for both servicemembers and non-servicemembers) experienced early delinquencies reaching 13%. After 2009, early delinquencies among nonprime VA mortgages originated in 2016 dropped to just above 3%. Conversely, conventional mortgages dropped below 2% and FHA and USDA mortgages dropped to 5% (for both servicemembers and non-servicemembers).
- Delinquency rates for active duty servicemembers with nonprime credit scores were found to be lower than their veteran counterparts. No such distinction in delinquency rates existed between active duty and veterans when the servicemembers had prime credit scores.
Troutman Sanders will continue to track trends in the mortgage industry as they are published by the CFPB.