Housing and Mortgage Market Update NVAR Economic Summit Fairfax, VA September 23, 2009 Frank E. Nothaft  Chief Economist
Housing Near Bottom, but  Mortgage Defaults Rising <ul><li>Housing activity low </li></ul><ul><ul><li>Single-family constr...
Single-family Building Hit a Record in 2005, but Has Fallen to Lowest Level Since 1945 Office of the Chief Economist One-F...
Building Permits Have Dropped in U.S. Over Last 4 Years Office of the Chief Economist Housing Permits U.S.  (Thousands) So...
Existing Home Sales Down a Third in U.S. and More in Virginia during the Last Four Years Office of the Chief Economist Sou...
Job Loss Is the Main Hardship Reason Among Delinquent Prime Borrowers Office of the Chief Economist Source: Freddie Mac; d...
U.S. Unemployment Rate Rose to 9.7% in August, the Highest in More Than 26 Years Office of the Chief Economist Unemploymen...
Forclosures Spike When House Values Fall Office of the Chief Economist Source: FHFA Purchase-Only House Price Index, MBA N...
Recent Default Experience Is Unlike Any Previous Business Cycle Since the 1930s Office of the Chief Economist Prime conven...
Increasing Delinquencies, Especially Subprime Office of the Chief Economist Loans 90 Days or More Delinquent or in Foreclo...
Relative to Serviced Loans, Subprime Accounts for a Very Large Share of Virginia Foreclosures Office of the Chief Economis...
Subprime, Alt-A ARMs, and Option ARMs Drive Foreclosures in Virginia Office of the Chief Economist Source: Mortgage Banker...
Private Label Securities Comprise 13% of Loans Outstanding but Over a Third of Problem Loans Office of the Chief Economist...
Keeping People in Their Homes A  Long-Standing Priority for Freddie Mac Office of the Chief Economist Source: Freddie Mac ...
Freddie Mac Plays A Leadership Role in Making Home Affordable Office of the Chief Economist $75 billion for   3-4 million ...
Freddie Mac Relief Refinance Mortgages <ul><li>Freddie Mac must own or guarantee </li></ul><ul><li>Borrowers must be curre...
Modification Program for At-Risk Borrowers <ul><li>$75 billion to subsidize loan modifications </li></ul><ul><li>Modificat...
Home Affordable Modification Program (HAMP): Results and Next Steps <ul><li>Supported nearly 2 million borrower solicitati...
Where to Get More Information Look for regular updates to our economic forecast, commentary and data at  www.freddiemac.co...
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Dr. Frank Nothaft - 13th Annual Economic Summit

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Presentation by Dr. Frank Nothaft at the 13th Annual Economic Summit hosted by NVAR at George Mason University on Wednesday, September 23, 2009.

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Dr. Frank Nothaft - 13th Annual Economic Summit

  1. 1. Housing and Mortgage Market Update NVAR Economic Summit Fairfax, VA September 23, 2009 Frank E. Nothaft Chief Economist
  2. 2. Housing Near Bottom, but Mortgage Defaults Rising <ul><li>Housing activity low </li></ul><ul><ul><li>Single-family construction is lowest since 1945 </li></ul></ul><ul><ul><li>In NoVa, housing permits down about 75% from 2005 </li></ul></ul><ul><ul><li>Sales are near bottom; about a third are foreclosure sales </li></ul></ul><ul><ul><li>U.S. house price measures up in 2 nd quarter, but will likely decline through 2010 </li></ul></ul><ul><li>Mortgage defaults rise </li></ul><ul><ul><li>Unemployment main trigger event for delinquency </li></ul></ul><ul><ul><li>House price declines add to foreclosure risk </li></ul></ul><ul><ul><li>Serious delinquency rates likely to rise further in 2009 </li></ul></ul><ul><ul><li>Subprime, Alt-A and Option ARMs drive Virginia foreclosures </li></ul></ul><ul><li>Making Home Affordable Is Very Important </li></ul><ul><ul><li>Keeping families in homes is our long-term priority </li></ul></ul><ul><ul><li>Streamline refinance will help families lower monthly payment </li></ul></ul><ul><ul><li>Loan modifications are ramping up </li></ul></ul>Office of the Chief Economist
  3. 3. Single-family Building Hit a Record in 2005, but Has Fallen to Lowest Level Since 1945 Office of the Chief Economist One-Family Housing Starts (thousands of units, SAAR) Sources: Bureau of Census (SAAR), Freddie Mac Third Quarter 2005 record: 1.75 million units Forecast First Quarter 2009: 0.36 million units – Recession
  4. 4. Building Permits Have Dropped in U.S. Over Last 4 Years Office of the Chief Economist Housing Permits U.S. (Thousands) Source: Bureau of Census (“Washington, DC and Northern Virginia” is the Washington-Arlington-Alexandria, DC-VA-MD-WV MSA) United States Washington, DC and Northern Virginia Housing Permits Washington & NoVa (Thousands) 76% Drop 74% Drop – Recession
  5. 5. Existing Home Sales Down a Third in U.S. and More in Virginia during the Last Four Years Office of the Chief Economist Source: National Association of Realtors (Existing Single-Family Houses, Apartment Condos & Co-ops) U.S. Existing Home Sales (Thousands) Virginia Existing Home Sales (Thousands) Home Sales Change 2005Q2 – 2009Q2 United States -33% Virginia -42% United States Virginia
  6. 6. Job Loss Is the Main Hardship Reason Among Delinquent Prime Borrowers Office of the Chief Economist Source: Freddie Mac; data exclude delinquent loans in Louisiana and Mississippi due to hurricane effects. Data cover only prime conventional conforming loans.
  7. 7. U.S. Unemployment Rate Rose to 9.7% in August, the Highest in More Than 26 Years Office of the Chief Economist Unemployment Rate (Percent) Forecast Sources: U.S. Department of Labor, Freddie Mac (“Washington, DC and Northern Virginia” is the Washington-Arlington-Alexandria, DC-VA-MD-WV MSA) United States Nov-Dec ‘82: 10.8% 2009Q4: 9.9% Dec ‘82-Jan ‘83: 7.8% VA Aug-09 6.5% Virginia Washington, DC and Northern Virginia – National Recession
  8. 8. Forclosures Spike When House Values Fall Office of the Chief Economist Source: FHFA Purchase-Only House Price Index, MBA National Delinquency Survey Virginia Annual House Price Change Percent of Virginia Loans in Foreclosure House Price Change (Left Scale) Foreclosure Rate (Right Scale)
  9. 9. Recent Default Experience Is Unlike Any Previous Business Cycle Since the 1930s Office of the Chief Economist Prime conventional loans 90 days or more delinquent or in foreclosure (percent) Source: National Bureau of Economic Research, Mortgage Bankers Association (Prime Conventional includes Alt-A). – Recession Year
  10. 10. Increasing Delinquencies, Especially Subprime Office of the Chief Economist Loans 90 Days or More Delinquent or in Foreclosure (percent of number) Source: Mortgage Bankers Association; “Prime Loans” includes Alt-A (Quarterly data not seasonally adjusted;1998Q1-2009Q2).
  11. 11. Relative to Serviced Loans, Subprime Accounts for a Very Large Share of Virginia Foreclosures Office of the Chief Economist Number of Foreclosures Started (Annual Rate in Thousands) Source: Mortgage Banker’s Association National Delinquency Survey (2003 is only for fourth quarter). Numbers adjusted for 85% coverage. 28% 36% 31% 30% 41% 32% 19% 32% 50% 38% 48% 7% 45% Subprime Share of Loans Serviced in VA: Peak (2007): 10% Today: 8% 56% 10% 35% 8% 56% 44% 28% 28%
  12. 12. Subprime, Alt-A ARMs, and Option ARMs Drive Foreclosures in Virginia Office of the Chief Economist Source: Mortgage Banker’s Association National Delinquency Survey. Numbers adjusted for 85% coverage. 28% Percent 1.7 million Loans 60,000 Foreclosures SUBPRIME FHA & VA PRIME & Alt-A ARM PRIME & Alt-A FIXED RATE
  13. 13. Private Label Securities Comprise 13% of Loans Outstanding but Over a Third of Problem Loans Office of the Chief Economist Number of First Mortgages Outstanding (in millions) Seriously Delinquent Mortgages (in millions) Other Portfolio 477 Other Portfolio 1% Total: 53 Million Sources: FDIC, Freddie Mac, Fannie Mae, Mortgage Bankers Association, HUD, First American CoreLogic (LoanPerformance). Note: Data as of June 30, 2009. Seriously Delinquent loans were at least 90 days delinquent or in foreclosure. Components may not sum to 100% because of rounding. Freddie Mac and Fannie Mae figures include whole loans held in portfolio and in guaranteed securities outstanding. Freddie Mac Fannie Mae Banks & Thrifts FHA & VA Private Label Securities Total: 4.2 Million
  14. 14. Keeping People in Their Homes A Long-Standing Priority for Freddie Mac Office of the Chief Economist Source: Freddie Mac Single-Family Alternatives to Foreclosure
  15. 15. Freddie Mac Plays A Leadership Role in Making Home Affordable Office of the Chief Economist $75 billion for 3-4 million mortgages Lower rates for 4-5 million mortgages Subsidized Modifications Easier Refinancing Making Home Affordable Has Two Main Components:
  16. 16. Freddie Mac Relief Refinance Mortgages <ul><li>Freddie Mac must own or guarantee </li></ul><ul><li>Borrowers must be current over past 12 months </li></ul><ul><li>LTVs up to 125% of current value </li></ul><ul><li>Lenders generally will not have to re-underwrite </li></ul><ul><li>Mortgage Insurance (MI): If loan has MI, same coverage must be maintained; if loan does not have MI then not required on greater than 80 percent LTV </li></ul><ul><li>Conventional loans </li></ul><ul><li>Must be originated by June 10, 2010 </li></ul>Office of the Chief Economist
  17. 17. Modification Program for At-Risk Borrowers <ul><li>$75 billion to subsidize loan modifications </li></ul><ul><li>Modifications will follow uniform guidelines </li></ul><ul><li>Reduces monthly payments to a 31 percent debt-to-income ratio </li></ul><ul><li>Provides financial incentives for servicers and borrowers to initiate and sustain modifications </li></ul><ul><li>Each GSE responsible for modifying their own loans </li></ul><ul><li>Fannie Mae is Program Administrator for Non-GSE modifications </li></ul><ul><li>Freddie Mac is Compliance Agent for Non-GSE modifications </li></ul>Office of the Chief Economist
  18. 18. Home Affordable Modification Program (HAMP): Results and Next Steps <ul><li>Supported nearly 2 million borrower solicitations, including multiple attempts </li></ul><ul><li>Approximately 16,000 loans entered trial periods in the second quarter of 2009, and a substantially greater number have entered trial periods since that date </li></ul><ul><li>To continue to support HAMP Freddie Mac will: </li></ul><ul><ul><li>Streamline the modification execution process </li></ul></ul><ul><ul><li>Accelerate document collection and signature services </li></ul></ul><ul><ul><li>Explore new technologies to help servicers assess imminent default </li></ul></ul>Office of the Chief Economist
  19. 19. Where to Get More Information Look for regular updates to our economic forecast, commentary and data at www.freddiemac.com/news/finance Contact us at chief_economist@freddiemac.com Opinions, estimates, forecasts and other views contained in this document are those of Freddie Mac's Office of the Chief Economist, do not necessarily represent the views of Freddie Mac or its management, should not be construed as indicating Freddie Mac's business prospects or expected results, and are subject to change without notice. Although the Office of the Chief Economist attempts to provide reliable, useful information, it does not guarantee that the information is accurate, current or suitable for any particular purpose. Information from this document may be used with proper attribution. Alteration of this document is prohibited. © 2009 by Freddie Mac.

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