Dr. Fratantoni - 13th Annual Economic Summit

Presentation at NVAR Economic SummitSeptember 23, 2009Mike FratantoniVP, Research & EconomicsMortgage Bankers Association

Macroeconomic and Interest Rate Outlook

Unemployment Rate
Source: Bureau of Labor Statistics

Inflation
Source: BLS

Measures of Household Wealth
Source: Federal Reserve Board

Home Sales
Sources: Census and NAR

Inventories and Vacancies

National Home Price Trend
Source: FHFA

Federal Reserve’s Balance Sheet, $ mil
Source: Federal Reserve
*All Liquidity Facilities includes: Term Auction credit; primary credit; secondary credit; seasonal credit; Primary Dealer Credit Facility; Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility; Term Asset-Backed Securities Loan Facility; Commercial Paper Funding Facility; outstanding principal amount of loans to American International Group, Maiden Lane LLC, Maiden Lane II LLC, and Maiden Lane III LLC; and central bank liquidity swaps.

Agency MBS Issuance Data and Government Purchase Programs
Sources: Federal Reserve, FHFA, IMF, Treasury

Economic Forecast
Source: Mortgage Bankers Association

Housing Market Forecast

Lending and Underwriting Trends

Fed Senior Loan Officer Survey: July 2009
Source: Board of Governors of the Federal Reserve

Purchase Apps

Refinance Activity

Product Mix: Quarterly Mortgage Bankers Performance Report
Production Mix, Average by Dollar Volume
Source: Mortgage Bankers Association, Quarterly Mortgage Bankers Performance Report

Mortgage Originations
$ Billion
Estimate
Forecast

Delinquencies, Foreclosures, and Loss Mitigation Efforts

Foreclosure Starts Rate

90+ Day Delinquencies by Loan Type (NSA)
Source: Mortgage Bankers Association NDS

90+ Delinquencies by State

DC, MD, VA Delinquencies and Foreclosures
Source: Mortgage Bankers Association, National Delinquency Survey

High Level of Modification Activity
Source: JPM Chase

Option ARMs
Lower short-term rates mitigate recast risk
Burnout
Benefits of refi and mod activity

Regulatory and secondary market reform Proposals

Loan limits
The Economic Stimulus Act of 2008 increased temporarily the CLL from $417,000 to $625,500.
The act set the CLL in high-cost areas based on the areas’ home prices compared to the national median, up to a maximum of $729,750.
The American Response and Recovery Act of 2009 raised, for one year, the high cost loan limits to the higher of $729,750 or the highest 2008 level. The standard level of $417,000 did not change.
The current FHA loan limit ranges up to $729,750 in high-cost areas.
With respect to 2010, the Senate stripped an extension of the higher GSE and FHA loan limits from the Transportation-HUD appropriations bill that it approved last Thursday. The higher limits were in the version of the bill that the House had earlier passed.
SIFMA voted to maintain limits on the ability of the GSEs to include “jumbo conforming” loans in TBA pools.

HR 1728 – Overview
HR 1728 - Mortgage Reform and Anti-Predatory Lending Act
Passed House May 7, 2009; Not Senate Priority
Safe harbor for “qualified loan” (rate does not exceed 1.5% over average prime offer rate; 2.5% for jumbo, 3.5% for junior liens; fully amortizing, total fees not to exceed 2 points; full underwriting...)
Economic Interest Requirements- Creditor of not qualified mortgages to retain economic interest (at least 5%) of credit risk for loan it transfers/sells.
Other Provisions - Other provisions regarding appraisals, pre-loan counseling and servicing.

Obama Administration Reform Proposal
Establishes National Bank Supervisor merging OCC and OTS
Elimination of thrift charter
Federal Reserve as systemic risk regulator
Consumer Financial Protection Agency CFPA
Broad jurisdiction - financial products and services,
Broad powers – “plain vanilla”, compensation, risk retention, disclosure, RESPA,TILA, CRA,HMDA
Floor not a ceiling – encourages patchwork
Rating agency reform
GSE proposal forthcoming with February 2010 budget document

Secondary Mortgage Market: Current State

Secondary Mortgage Market: MBA Proposal

Conclusions
Difficult macro environment
Ongoing weakness in the job market
Upward trend in rates
Continuing weakness in the housing market
Continuing increases in delinquency and foreclosure rates until job market improves
Difficult regulatory environment
More and more restrictive regulation coupled with industry tightening of underwriting will likely continue to restrict the flow of credit
Uncertainty regarding the future role and capabilities of the GSEs or their successors

Dr. Fratantoni - 13th Annual Economic Summit

by NVAR .com on Sep 23, 2009

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Dr. Fratantoni - 13th Annual Economic Summit — Presentation Transcript