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

Macroeconomic and Interest Rate Outlook

Unemployment Rate Source: Bureau of Labor Statistics

InflationSource: BLS

Measures of Household WealthSource: Federal Reserve Board

Home SalesSources: Census and NAR

Inventories and Vacancies

National Home Price TrendSource: FHFA

Federal Reserve’s Balance Sheet, $ milSource: 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 ForecastSource: Mortgage Bankers Association

Housing Market ForecastSource: Mortgage Bankers Association

Lending and Underwriting Trends

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

Purchase Apps

Refinance Activity

Product Mix: Quarterly Mortgage Bankers Performance ReportProduction Mix, Average by Dollar VolumeSource: Mortgage Bankers Association, Quarterly Mortgage Bankers Performance Report

Mortgage Originations$ BillionEstimateForecastSource: Mortgage Bankers Association

Delinquencies, Foreclosures, and Loss Mitigation Efforts

Foreclosure Starts Rate

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

90+ Delinquencies by StateSource: Mortgage Bankers Association

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

High Level of Modification ActivitySource: JPM Chase

Option ARMsLower short-term rates mitigate recast riskBurnoutBenefits of refi and mod activity

Lower short-term rates mitigate recast risk

Burnout

Benefits of refi and mod activity

Regulatory and secondary market reform Proposals

Loan limitsThe 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 – OverviewHR 1728 - Mortgage Reform and Anti-Predatory Lending ActPassed House May 7, 2009; Not Senate PrioritySafe 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 ProposalEstablishes National Bank Supervisor merging OCC and OTSElimination of thrift charterFederal Reserve as systemic risk regulatorConsumer Financial Protection Agency CFPABroad jurisdiction - financial products and services, Broad powers – “plain vanilla”, compensation, risk retention, disclosure, RESPA,TILA, CRA,HMDAFloor not a ceiling – encourages patchworkRating agency reformGSE proposal forthcoming with February 2010 budget document

Secondary Mortgage Market: Current State

Secondary Mortgage Market: MBA Proposal

ConclusionsDifficult macro environmentOngoing weakness in the job marketUpward trend in ratesContinuing weakness in the housing marketContinuing increases in delinquency and foreclosure rates until job market improvesDifficult regulatory environmentMore and more restrictive regulation coupled with industry tightening of underwriting will likely continue to restrict the flow of creditUncertainty regarding the future role and capabilities of the GSEs or their successors