3 posts from December 2013

Sound the retreat? Credit scores for refinancing home loans come down a bit

As the mortgage refinancing boom ebbs, the refi market is shifting toward borrowers with less than stellar credit, according to new data from the Federal Reserve Bank of Minneapolis.

As the housing market tanked in 2008, average credit scores for those interested in refinancing their mortgage rose significantly, and until recently scores remained elevated, reflecting the stricter credit standards lenders used to reduce their exposure to the struggling sector (see chart). But in recent months, those credit scores have fallen noticeably—to 2010 levels for loans from the Federal Housing Administration and Veteran’s Administration and to 2009 levels for conventional loans. The trend is apparent nationwide and in the Ninth District, although the level of average refinance credit scores is a bit higher in the district.

The reasons for this shift are hard to pinpoint with certainty, but could indicate a combination of some relaxation of high credit standards by lenders, growing awareness and ability to respond to refinance opportunities among consumers with lower scores, or relatively sated demand for refinancing among consumers with high scores. For example, rising home prices in the Ninth District may have made it easier for consumers with somewhat lower credit scores to qualify for refinancing. Any expansion in the range of consumers qualifying for refinances would have helped boost the volume of refinancings in early 2013 or have moderated the decline in volume in the second half of the year.

These and other housing trends can be found on the Minneapolis Fed’s Housing Market and Mortgage Conditions web page, which gathers data on housing originations, mortgage performance and prices.

Credit scores refinance -- CD 12-18-13
Source: Federal Reserve Bank of Minneapolis staff calculations based on data provided by Lender Processing Services (LPS)

Mixed results on 4th and 8th grade assessments in district states

Recently available scores from the National Assessment of Educational Progress (NAEP) showed mixed results in district states on fourth and eighth grade assessments from 2011 to 2013 (see Chart 1).

In Minnesota, fourth graders made notable gains in both math and reading assessments. In fact, the remainder of assessments are rather sobering, declining a majority of the time across both reading and (especially) math for most district states, except Wisconsin, which saw test scores remain essentially level.

NAEP scores CH1 -- 12-11-13

Minnesota now ranks among the nation’s higher scoring states in fourth grade math and reading. In fourth grade math, Minnesota’s average score is higher than 48 states and is tied, or within the margin of error, with two states. (See Charts 2 and 3, which show the number of states that have higher scores than the district state, lower scores and scores that fall within the margin of error and therefore are not considered statistically different.) Minnesota’s fourth grade math average scores consistently ranked in the nation’s top 10 highest-scoring states over the past 10 years; however, Minnesota’s fourth grade reading scores were more sporadic during this time. For example, in 2011, Minnesota’s fourth grade reading assessment reliably outscored only 15 other states, while in 2013, it outscored 30 other states.

Although assessment score rankings in other district states generally slid slightly from 2011 to 2013, district rankings were either close to the middle (ranking 25th) or higher in most categories. However, assessment score rankings were below the middle in South Dakota’s fourth grade scores, particularly so in reading.

NAEP scores CH2-3 12-11-13

The NAEP assessments are part of a congressionally authorized project within the U.S. Department of Education. The reading assessment measures reading comprehension by having students read selections and answer questions based on what they read. The mathematics assessment measures grade-appropriate knowledge and skills in number properties and operations, measurement, geometry, data analysis and algebra.

Bakken tops in oil production growth

In October, the United States reached an important milestone on the march toward energy independence—more crude oil was pumped from domestic ground than was shipped in from abroad. Domestic production topped 7.7 million barrels per day (bbl/d), exceeding imports for the first time since 1995, according to the U.S. Energy Department.

That milestone might not have been reached—or it would have taken longer to reach—if not for surging crude production in the Bakken region of western North Dakota and eastern Montana. In September, the district’s oil patch hit its own milestone, crossing the 1 million bbl/d threshold. The bulk of that production came from wells in North Dakota, the nation’s second-biggest oil-producing state.

North Dakota and Montana account for only about 13 percent of total U.S. production. But output has grown—and is expected to keep growing—faster in the Bakken region than in the rest of the continental United States and in the nation as a whole (see chart). The North Dakota Pipeline Authority, a state agency that supports pipeline development, forecasts at least a 19 percent increase in Bakken production through the end of next year.

The NDPA recently updated its forecast to reflect advances in well development and drilling techniques over the past few years. Oil companies are spacing well sites closer together—a practice known in the industry as “downspacing”—and drilling multiple wells from single concrete pads. Both methods boost drilling efficiency and reduce labor and infrastructure costs. In addition, producers are tapping into deeper oil reserves—layers of oil-bearing shale below already established oil zones in the Bakken and Three Forks formations.

Bakken production -- 12-2-13

These advances—facilitated by high oil prices that have prompted investment in shale oil plays across the country—hold promise for more record-setting months in the Bakken. The chart shows the NDPA’s conservative production forecast; another development scenario projects even higher oil output in 2014 and for years to come. The NDPA’s latest long-range forecast shows Bakken production peaking a decade from now at about 1.5 million bbl/d.