If you are a typical U.S. homeowner, you think about the mortgage once a month, when you write the check, put it with the payment coupon in the envelope and drop it in the mail.
About 66 percent of all U.S. homeowners follow this ritual every 30 days. The rest don't, because they own their houses free and clear. Most of these are 65 years of age and older, which makes perfect sense because some of these people have lived in their houses longer than 30 years, while those who have bought into an active adult community or a condo in the city have used three decades of accumulated equity to pay cash.
Only 30 percent of the people in this age group have either mortgage or home equity loan debt. I assume that these folks are still working and need the tax deduction, or are among a very large group of aging boomers who fear that they haven't put enough away for complete retirement and are trying to build up a nest egg with proceeds of the sale of the previous house.
I'm not sitting in my home office making this up. I'm reading the latest issue of the Mortgage Bankers Association Research DataNotes, which the association publishes periodically to keep tabs on trends. This one results from the fact that the five years between 2001 and 2006 saw a strong housing market and a surge of mortgage debt because of it.
One thing the MBA found is that households with income below the poverty line also are less likely to have a mortgage. Homeowners in the western United States are the most likely to have a mortgage, while those in the South are least so.
The American Housing Survey reports that 70 percent of outstanding loans have been originated since 2000, with the number lower for people over 65 and for African-Americans. Western homeowners have younger mortgages.
More mortgages were originated in 2003 than ever before -- a total of $4 trillion, with $2.5 trillion in refinancing and the rest loans for purchase. That year also saw the lowest mortgage rates in 40 years, leading millions of homeowners to refinance. For most of 2003, the contract interest rate for 30 year fixed mortgages was close to 5 percent; today, the rate is under 6.2 percent.
Home mortgage debt in 2003 was $7 trillion, and grew to $8.2 trillion in 2004, according to the Fed's Flow of Funds data. Purchase originations also reached records in 2004 and 2005, but refis fell below the 2003 record level.
The MBA said its own data show an even greater proportion of outstanding loans from recent years than what the AHS reports. By the lenders' groups reckoning, 86 percent of outstanding loans have been originated since 2000, and 80 percent since 2002. For subprime loans, an even-greater proportion -- 75 percent -- have been originated since 2003.
The average age of FHA and VA loans is about five years; for all loans, it's three years, and for subprime adjustable rate mortgages, it's only an average of two years.
Most of Fannie Mae's 30-year fixed-rate mortgage-backed securities have a coupon interest rate below 6 percent. Data from the American Housing Survey show that recent movers and people living in the West, who tend to have larger average loan balances, are most likely to have rates in the lowest rate bracket.
In the last eight years, the VA and FHA share of the residential mortgages has declined, while prime and subprime markets shares have increased substantially.
While recent data from Freddie Mac show a drop in the percentage of adjustable rate mortgages owing to the narrowing of the gap with fixed rates, the MBA survey shows evidence of continued high ARMs' share, at least through 2005. The ARMs share grew to 25 percent in 2005 from 18 percent in 2003, when fixed rates were at their 40-year low.
Among prime mortgages, the share of ARMs -- always more popular in the high-cost areas of the Southwest, California and Florida -- increased to 20 percent in 2005 from 16 percent in 2003; for subprime mortgages, the ARM share increased to 59 percent in 2005 from 45 percent in 2003.
Senior homeowners who do have mortgages have small remaining balances of less than $50,000, while recent movers and people in the West have the highest proportion of larger balance loans.
What about equity? In 2005, 23 percent of purchase mortgages had loan-to-value ratios above 80 percent, and the states with the highest proportion of those instruments were Louisiana, Mississippi, Iowa and Missouri -- all of which have relatively low housing prices. They also have high FHA shares, since the FHA specializes in high-LTV lending.
The MBA study also showed that in the last five years, the most rapid rates of home price appreciation have been on the coasts, while the interior had price growth along historical lines.
While appreciation rates were lower in 2006, and five states -- Maine, Massachusetts, Indiana, Ohio and Michigan actually experienced declines in the second quarter, according to the Office of Federal Housing Enterprise Oversight, home equity has been growing, even for relatively new loans.
Aggregate home equity rose to $12.9 trillion in the second quarter of 2006 from $10.9 trillion in 2004.
That's a fact you can take to the bank.
