Data provides first industry-wide look at mortgages to servicemembers
March 01, 2019 / Source: CFPB
Today the Bureau released the latest quarterly consumer credit trends report, which focused this quarter on mortgages made to first-time homebuying servicemembers.
When buying a house, servicemembers have the option of taking out a home loan guaranteed by the U.S. Department of Veterans Affairs (VA). VA-guaranteed home loans differ from other mortgages in several ways including allowing a purchase with no down payment and without mortgage insurance and providing stronger loan-servicing protections than many other mortgages. Servicemembers may also choose mortgage products open to non-servicemembers, such as a conventional loan or a loan regulated by a different government agency, such as the Federal Housing Administration (FHA) or U.S. Department of Agriculture (USDA).
The report analyzes data from the Bureau’s Consumer Credit Panel (CCP) supplemented with data on military service. The CCP is a longitudinal, nationally-representative sample of approximately five million de-identified credit records maintained by one of the three nationwide consumer reporting agencies. To distinguish credit records for servicemembers, the CCP data were matched to the Department of Defense’s Servicemembers Civil Relief Act (SCRA) database . The resulting data offers a unique look at the mortgage choices and outcomes of servicemembers who bought homes between 2006 and 2016.
Key findings from the data
The use of VA mortgages among first-time homebuying servicemembers increased
The share of first-time homebuying servicemembers using VA mortgages dramatically increased, from 30 percent before 2007 to 63 percent in 2009. Among non-servicemember first-time homebuyers there was a parallel increase in the use of FHA and USDA mortgages. However, whereas non-servicemembers’ reliance on FHA/USDA mortgages declined after 2009, servicemembers’ reliance on VA loans continued to increase, reaching 78 percent by 2016.
The increase in the VA home loan share among first-time homebuying servicemembers was similar across servicemembers with prime or nonprime credit scores.
The use of conventional mortgages decreased among servicemembers and non-servicemembers
The greater share of VA loans among servicemembers was part of a larger shift away from conventional to government-guaranteed mortgages between 2006 and 2009 for both servicemembers and non-servicemembers.
Conventional mortgages—that is, non-government-guaranteed mortgages—were about 60 percent of loans among first-time homebuying servicemembers in 2006 and 2007, but this share declined to 13 percent by 2016.
By comparison, the conventional loan share among non-servicemembers fell from almost 90 percent before 2008 to 41 percent in 2009, and the combined share of FHA and USDA mortgages to these borrowers increased accordingly.
The median amount on servicemember first-time homebuyer VA loans increased
The median servicemember first-time homebuyer VA loan amount increased in nominal dollars from $156,000 in 2006 to $212,000 in 2016, closely tracking the median value of conventional home loans taken out by non-servicemembers.
By contrast, the median loan amounts for servicemembers who used conventional or FHA/USDA mortgages during this period were lower in 2006 and increased at a slower pace, growing from $130,000 in 2006 to $150,000 in 2016.
Early delinquency rates among nonprime borrowers fell after 2009
Early delinquency rates (the percentage share of loans 60 days or more delinquent within one year of origination) among servicemembers with nonprime credit scores ranged from five to below seven percent for VA mortgages originated in 2006 and 2007.
By contrast, early delinquency rates for conventional and FHA/USDA mortgages to nonprime borrowers (servicemembers and non-servicemembers) originated during the same period were as high as 13 percent.
After 2009, early delinquency rates among nonprime borrowers fell for all mortgage types, with the delinquency rate for VA mortgages to servicemembers slightly above three percent for loans originated in 2016, compared to under two percent for conventional loans and five percent for FHA/USDA loans (to servicemembers and non-servicemembers).
Early delinquency rates among first-time homebuying servicemembers differed between active duty and veteran borrowers
Among first-time homebuying servicemembers with nonprime credit scores, early delinquency rates were lower for VA-loan borrowers who were serving on active duty than for VA-loan borrowers who were veterans no longer on active duty.
Among first-time homebuying servicemembers with prime credit scores, there was no difference in delinquency rates for active-duty servicemembers compared with veterans.