Community Banks Increase Lending to First-Time Buyers

Small and medium commercial and savings banks trimmed their originations of FHA and jumbo loans in 2012 and increased their production of conforming mortgages.

They also increased their lending to first-time homebuyers from 9% of production in 2011 to 11% in 2012, according to an annual survey by the American Bankers Association.

The 261 depository institutions retained 40% of their loans in portfolio, relatively unchanged from 2011. But they sold more loans to Freddie Mac than Fannie Mae, a reversal of 2011.

These institutions sold 15% of their loans to Freddie and 12% to Fannie in 2012. In the prior year, 15% were sold to Fannie and 13% to Freddie. The ABA real estate survey picked up that 18% of respondents experienced an increase in repurchase requests in 2012.

Aggregators captured 18% of ABA respondents’ loans last year, up 1 percentage point from 2011.

Wells Fargo was the top aggregator in 2012 followed by U.S. Bank, which was No. 1 in 2011.

Of the 261 respondents, roughly 85% have assets of less than $1 billion. Over half (53.4%) of their borrowers have FICO scores of 720 and above. Another 30% have scores of 680 to 719. Just 17% have a FICO score below 700 and only 2.4% below 620.

These institutions require private mortgage insurance on 74% of their loans with LTVs above 80%.

But they also increased their piggyback lending (simultaneous first and second loans) from 1.1% in 2011 to 3.8% in 2012.

Meanwhile, FHA lending fell for the second year—dropping to 3.8% of production in 2012, compared to 6.5%.

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