More recently issued Fannie and Freddie loans, those originated in 2009, have performed much better than loans originated during boom, and have also performed better than loans issued in 2002 and 2003.
The graphs depict the performance of vintage loans in the first two years after origination. At the end of this period, Fannie and Freddie loans originated in 2007 and 2008 had default rates of more than 40 and more than 20 basis points, respectively. At a similar point after origination, 2009 loans have a default rate less than 3 basis points.
In the graph, we see that performance really begins to diverge by vintage at the end of the first full year of origination. Looking at the table where we see data at the end of the first full year of origination by vintage, we see that 2009 vintage loans also perform better than the more typical 2002 to 2003 vintages.
One likely driver of this improved performance is reduced risk exposure. Fannie and Freddie new Alt-A and Interest-Only business is nearly non-existent; the same is true for loans whose borrower’s credit score is less than 620. The share of loans with an LTV greater than 90 percent (or implied down payment of less than 10 percent) has also fallen while average borrower credit scores are above 760 for Fannie and 750 for Freddie.
Figures through the third quarter of 2010 show a slight easing of credit (average credit scores have decreased by 1 point at Fannie and 4 points at Freddie while average LTVs have increased by 2 and 3 basis points), but loan performance will likely remain well above the troubled 2004 to 2008 vintages, and may even exceed the performance of loans originated in 2002 and 2003.