CMPS Conference


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Presentation to the Certified Mortgage Professionals Institute Conference

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  • CMPS Conference

    1. 1. The Current Status and Outlook for the U.S. Economy, Housing and Mortgage Markets Specially Prepared for: The CMPS Institute South San Francisco, CA Presented by: LaVaughn M. Henry, Ph.D. Director, U.S. Economic Analysis The PMI Group, Inc. October 8, 2008
    2. 2. Presentation Outline <ul><li>The National Economy </li></ul><ul><li>U.S. GDP Trends </li></ul><ul><li>Consumer Spending and Inflation </li></ul><ul><li>The Labor Markets </li></ul><ul><li>The Credit Markets </li></ul><ul><li>The Housing and Mortgage Markets </li></ul><ul><ul><li>Trends in Home Sales </li></ul></ul><ul><ul><li>Housing Supply </li></ul></ul><ul><ul><li>Regional Outlook for House Price Appreciation </li></ul></ul><ul><ul><li>The Mortgage Markets </li></ul></ul><ul><li>The Outlook: Where Do We Go From Here? </li></ul><ul><li>Major Elements of the EESA 2008 </li></ul><ul><ul><li>Potential Impact of the Financial Restructuring </li></ul></ul><ul><ul><li>Reinvigorating Growth While Reducing Market Risk </li></ul></ul>
    3. 3. The National Economy
    4. 4. GDP Growth is Positive, but Weak… Source: Bureau of Economic Analysis
    5. 5. … but Growth in Demand has Fallen to Near Zero.
    6. 6. Consumer Confidence has fallen, but Spending has not fallen dramatically…Yet
    7. 7. Consumer Inflation is High and the Outlook Remains Uncertain
    8. 8. Consumer Inflation is Being Driven by Continuing Increases in Food and Energy Prices
    9. 9. Employment Growth is Under Growing Pressure, but Strong by Historical Standards
    10. 10. Demand for Mortgages has Risen Recently…
    11. 11. … but Lenders Continue to Tighten Lending Standards… Source: Federal Reserve Board
    12. 12. … as Foreclosures Continue to Increase… Source: Mortgage Bankers Association
    13. 13. Growth in Bank Credit has Gone to Zero.
    14. 14. Regional Housing Markets
    15. 15. The PMI U.S. Market Risk Index <ul><li>Proprietary econometric model developed by The PMI Group, Inc. that estimates the probability that prices will fall in each of the nation’s 381 MSAs by the end of the next two years. </li></ul><ul><li>Based on OFHEO’s quarterly house price index for conventional, conforming loans. </li></ul><ul><li>Considers factors including price movement, housing affordability, local employment conditions, housing supply and foreclosures. </li></ul><ul><li>Utilizes more than 25,000+ observations of MSAs and quarterly combinations </li></ul><ul><li>All of the Model’s Primary Econometric Determinants are Statistically Significant at the 99% level or greater </li></ul>
    16. 16. Actual Decline Percent vs. Predicted Percent 4 th Qtr 1986 to 3 rd Qtr 2005
    17. 17. Geographic Distribution of House Price Risk 2nd Quarter 2008 – 2 nd Qtr 2010
    18. 18. Selected Indicators of the Current Status and Outlook for the Housing Market <ul><li>Declining Excess Housing Supply </li></ul><ul><li>Improving Housing Affordability </li></ul><ul><li>Declining Price/Rent Ratios </li></ul><ul><li>Flattening Home Sales </li></ul><ul><li>Decelerating House Price Depreciation </li></ul><ul><li>Slowing Growth in Unemployment Rates </li></ul><ul><li>Declining Delinquency and Foreclosure Rates </li></ul>
    19. 19. Four Characteristic MSAs Chicago Miami Washington, DC Dallas
    20. 21. Excess Housing Supply is Falling Source: Census Bureau / Moody’s
    21. 22. MSA Comparisons of Excess Housing Supply Source: Census Bureau / Moody’s
    22. 24. Housing Affordability is Rising Source: Census Bureau / Moody’s
    23. 25. MSA Comparisons of Housing Affordability Source: Census Bureau / Moody’s
    24. 27. House Price/Rent Ratios are Coming back into line with Historical Standards Source: National Association of Realtors / HUD / Moody’s
    25. 28. MSA Comparison of Housing Price-to-Rent Ratios Source: National Association of Realtors / HUD / Moody’s
    26. 30. Existing Home Sales are Flattening Out, but at Significantly Lower Levels Source: National Association of Realtors / Moody’s
    27. 31. MSA Comparison of Existing Single Family Home Sales Source: National Association of Realtors / Moody’s
    28. 33. House Prices are still Declining in General, but the Rate of Decline is Slowing in Many Areas Source: Loan Performance Corporation
    29. 34. MSA Comparison of House Price Appreciation Source: Loan Performance Corporation
    30. 36. Unemployment is Rising in Many Sectors of the Economy Source: Bureau of Labor Statistics
    31. 37. MSA Comparison of Civilian Unemployment Rates Source: Bureau of Labor Statistics
    32. 39. Foreclosures are Rising at Record Rates Source: Mortgage Bankers Association
    33. 40. The Outlook: Where Do We Go From Here?
    34. 41. Major Elements of the Emergency Economic Stabilization Act of 2008 <ul><li>Establishes a Troubled Asset Relief Program (“TARP”) to purchase and guarantee troubled assets from financial institutions. The Secretary has immediate authority to purchase up to $250 billion in troubled assets, $100 billion more upon certification of the President, and $350 billion more if Congress authorizes the President’s request. </li></ul><ul><li>Establishes the Financial Stability Oversight Board to review and make recommendations to ensure that the policies implemented by the Secretary protect taxpayers, are in the economic interests of the United States. Requires the Comptroller General of the United States to conduct ongoing oversight of the activities and performance of the TARP, and to report every 60 days to Congress, and conduct an annual audit. </li></ul><ul><li>Provides Assistance to Homeowners through Foreclosure Mitigation. For mortgages and mortgage-backed securities acquired through TARP, the Secretary must implement a plan to mitigate foreclosures and to encourage servicers of mortgages to modify loans through Hope for Homeowners and other programs. </li></ul><ul><li>Establishes Limits on Executive Compensation and Corporate Governance. Provides that Treasury will promulgate executive compensation rules governing financial institutions that sell it troubled assets. </li></ul><ul><li>Provides the Government the right to acquire an Equity Interest in Participating Financial Institutions. Requires that the Treasury receive non-voting warrants from participating financial institutions. </li></ul><ul><li>Allows for the Temporary Increase in Deposit and Share Insurance Coverage. Raises the FDIC and the National Credit Union Share Insurance Fund deposit insurance limits from $100,000 per account to $250,000 until December 31, 2009. </li></ul>
    35. 42. <ul><li>Financial Solvency </li></ul><ul><ul><li>Will improve as confidence re-enters markets. This will take time. </li></ul></ul><ul><ul><li>Consolidation of institutions likely to continue over the long-term as push toward market efficiency, financial solvency, and regulatory oversight increases. </li></ul></ul><ul><li>Lending Volumes </li></ul><ul><ul><li>Near Term - Lending volumes will remain weak in response to low capital levels </li></ul></ul><ul><ul><li>Long Term – Lending volumes will expand as market confidence expands and financial solvency improves </li></ul></ul><ul><li>Interest Rates </li></ul><ul><ul><li>Higher interest rates if inflation continues to rise </li></ul></ul><ul><ul><li>Higher interest rates because of shrinkage of the financial sector </li></ul></ul>Possible Implications of the Federal Bailout of the Financial Sector on the Mortgage Market
    36. 43. Reinvigorating Growth While Reducing Market Risk <ul><li>Increased Capitalization of Institutions will Remain the Focus </li></ul><ul><ul><li>Increased market oversight will become standard </li></ul></ul><ul><ul><li>Role of the GSEs will become the focus of debate in 2009 </li></ul></ul><ul><li>Lending Standards Will Evolve to Meet Market Needs </li></ul><ul><ul><li>Equity requirements are unlikely to be reduced dramatically in the near-term </li></ul></ul><ul><ul><li>Loan modifications are likely to increase in the near term </li></ul></ul><ul><li>Foundation of Market Growth will Increase as 2009 Unfolds </li></ul><ul><ul><li>Pent-up demand continues to increase </li></ul></ul><ul><ul><li>Improved housing affordability is the “insurance policy” for renewed future growth </li></ul></ul>