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Dr. Fratantoni - 13th Annual Economic Summit

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Dr. Fratantoni - 13th Annual Economic Summit

  1. 1. Presentation at NVAR Economic SummitSeptember 23, 2009Mike FratantoniVP, Research & EconomicsMortgage Bankers Association<br />
  2. 2. Macroeconomic and Interest Rate Outlook<br />
  3. 3. Unemployment Rate <br />Source: Bureau of Labor Statistics<br />
  4. 4. Inflation<br />Source: BLS<br />
  5. 5. Measures of Household Wealth<br />Source: Federal Reserve Board<br />
  6. 6. Home Sales<br />Sources: Census and NAR<br />
  7. 7. Inventories and Vacancies<br />
  8. 8. National Home Price Trend<br />Source: FHFA<br />
  9. 9. Federal Reserve’s Balance Sheet, $ mil<br />Source: Federal Reserve <br />*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.<br />
  10. 10. Agency MBS Issuance Data and Government Purchase Programs <br />Sources: Federal Reserve, FHFA, IMF, Treasury<br />
  11. 11.
  12. 12. Economic Forecast<br />Source: Mortgage Bankers Association<br />
  13. 13. Housing Market Forecast<br />Source: Mortgage Bankers Association<br />
  14. 14. Lending and Underwriting Trends<br />
  15. 15. Fed Senior Loan Officer Survey: July 2009<br />Source: Board of Governors of the Federal Reserve<br />
  16. 16. Purchase Apps<br />
  17. 17. Refinance Activity<br />
  18. 18. Product Mix: Quarterly Mortgage Bankers Performance Report<br />Production Mix, Average by Dollar Volume<br />Source: Mortgage Bankers Association, Quarterly Mortgage Bankers Performance Report<br />
  19. 19. Mortgage Originations<br />$ Billion<br />Estimate<br />Forecast<br />Source: Mortgage Bankers Association<br />
  20. 20. Delinquencies, Foreclosures, and Loss Mitigation Efforts<br />
  21. 21. Foreclosure Starts Rate<br />
  22. 22. 90+ Day Delinquencies by Loan Type (NSA)<br />Source: Mortgage Bankers Association NDS <br />
  23. 23. 90+ Delinquencies by State<br />Source: Mortgage Bankers Association <br />
  24. 24. DC, MD, VA Delinquencies and Foreclosures<br />Source: Mortgage Bankers Association, National Delinquency Survey <br />
  25. 25. High Level of Modification Activity<br />Source: JPM Chase <br />
  26. 26. Option ARMs<br /><ul><li>Lower short-term rates mitigate recast risk
  27. 27. Burnout
  28. 28. Benefits of refi and mod activity</li></li></ul><li>Regulatory and secondary market reform Proposals<br />
  29. 29. Loan limits<br />The Economic Stimulus Act of 2008 increased temporarily the CLL from $417,000 to $625,500. <br />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.<br />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.<br />The current FHA loan limit ranges up to $729,750 in high-cost areas.<br />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.<br />SIFMA voted to maintain limits on the ability of the GSEs to include “jumbo conforming” loans in TBA pools.<br />
  30. 30. HR 1728 – Overview<br />HR 1728 - Mortgage Reform and Anti-Predatory Lending Act<br />Passed House May 7, 2009; Not Senate Priority<br />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...)<br />Economic Interest Requirements- Creditor of not qualified mortgages to retain economic interest (at least 5%) of credit risk for loan it transfers/sells. <br />Other Provisions - Other provisions regarding appraisals, pre-loan counseling and servicing.<br />
  31. 31. Obama Administration Reform Proposal<br />Establishes National Bank Supervisor merging OCC and OTS<br />Elimination of thrift charter<br />Federal Reserve as systemic risk regulator<br />Consumer Financial Protection Agency CFPA<br />Broad jurisdiction - financial products and services, <br />Broad powers – “plain vanilla”, compensation, risk retention, disclosure, RESPA,TILA, CRA,HMDA<br />Floor not a ceiling – encourages patchwork<br />Rating agency reform<br />GSE proposal forthcoming with February 2010 budget document<br />
  32. 32. Secondary Mortgage Market: Current State<br />
  33. 33. Secondary Mortgage Market: MBA Proposal<br />
  34. 34. Conclusions<br />Difficult macro environment<br />Ongoing weakness in the job market<br />Upward trend in rates<br />Continuing weakness in the housing market<br />Continuing increases in delinquency and foreclosure rates until job market improves<br />Difficult regulatory environment<br />More and more restrictive regulation coupled with industry tightening of underwriting will likely continue to restrict the flow of credit<br />Uncertainty regarding the future role and capabilities of the GSEs or their successors<br />