An Introduction to RiskSpan’s Benchmarking Tool

RiskSpan’s Benchmarking Tool includes the most recent monthly loan-level issuance data released by Fannie Mae and Freddie Mac (the GSEs), providing insights into the characteristics of mortgage loans made throughout the U.S. Each month, we collect, normalize, and store the GSE data in our proprietary database. This allows our issuance Benchmarking Tool to generate a seller-specific analysis by focusing on To Be Announced (TBA) pools of all loan terms. What follows is a sample of the data along with representative analyses.  

Ranking of Issuers

Issuers are ranked based on the original principal balance of all fixed-rate, TBA pools securitized in the previous month. The top 100 issuers are identified along with the total for all issuers—the top 100 plus everyone else. This table ranks the issuers by volume; however, users have the option to rank based on the loan count, weighted-average original FICO score, or weighted-average original LTV.

Comparing Issuers

Users can select multiple issuers for a more detailed comparison by checking the “Compare” box next to each issuer. We selected Quicken Loans, US Bank, PennyMac, and BB&T for this analysis. For each metric and issuer, a value (either the total or average) is presented along with where the value ranks among the top 100 issuers and the change in the rank (either up, down, or no change) from the previous month. Here are some notable observations from the March 2018 Issuance:
  1. BB&T’s average loan size of $202k is much less than that of the other issuers. It is $89,000 less than the average for all issuers and $105,000 lower than PennyMac’s average loan size.
  2. An mean FICO score of 743 across the board indicates that the average loan is of very high quality. Quicken Loans ranks 82nd despite a relatively high average FICO score of 735.
  3. BB&T and Quicken Loans are at opposite extremes when it comes to first-time home buyers. First-time home buyers accounted for 56% of BB&T’s mortgages (ranked 3rd) while just 12% of Quicken Loans’ originations went to such borrowers (83rd place).
  4. Only 24% of Quicken’s loans were for the purchase of a home, which ranks 91st, while 83% of BB&T’s originations were purchase-money loans (6th place).

Spider Chart

The spider chart allows users to quickly assess the riskiness of an issuer’s loans across multiple dimensions. The following chart depicts how the four institutions we selected compare to one another across in terms of various risk characteristics: low FICO scores, high loan-to-value ratios, high debt-to-income ratios, non-owner occupied (investment) properties, non-retail originations, and first-time home buyers. The dimensions of the spider legs are as follows;
  1. % FICO < 700 – the percentage of loans with an original FICO score less than 700. The higher the percentage, the riskier the portfolio of loans.
  2. % LTV > 80 – the percentage of loans with an original LTV greater than 80%. A higher percentage indicates higher risk.
  3. % DTI > 40 – the percentage of loans with a debt-to-income (DTI) ratio greater than 40%. A higher percentage corresponds to greater risk.
  4. % Investor – the percentage of loans made on investment properties. The higher the percentage, the riskier the loans.
  5. % Non-Retail – the percentage of loans made through non-retail channels (i.e., via correspondents or brokers). The higher percentage of non-retail originations, the riskier the loans.
  6. % FTHB – the percentage of loans made to first time home buyers. First time home buyers tend to be riskier borrowers, so the higher the percentage, the more risk with the loans.
Interpreting the spider chart is relatively straightforward, the larger the area made by connecting the points along each leg for a given institution, the greater the overall risk for the portfolio of loans. While this is admittedly a rough approximation, as the risk is not uniform for all of the legs nor is the risk necessarily linear as you move from the focal point to the ends of the legs. RiskSpan’s Benchmarking Tool is free to everyone and can be accessed via the following URL;   ————————————————————— Note: The analysis in this blog post was developed using RiskSpan’s Edge Platform. The RiskSpan Edge Platform is a module-based data management, modeling, and predictive analytics software platform for loans and fixed-income securities. Click here to learn more.