Mortgage Market Update

Transcription

1 Mortgage Market Update 2010 International Builders Show Las Vegas, NV January 19, 2010 Frank E. Nothaft Chief Economist

2 Mortgage Rates Low, But Defaults Rising; Loan Modifications Will Help Reduce Overall Impact Mortgage rates low, underwriting more careful 30-year fixed mortgage rates stay in 5% to 6% range in 2010 Originations 10% less in 2010, driven by less refinance FHA & VA about one-fourth of all lending in 2010 Mortgage defaults rise Unemployment main trigger event for delinquency House price declines add to foreclosure risk Serious delinquency rates likely to rise further in 2010 Subprime, Alt-A and Option ARMs drive foreclosures Making Home Affordable lessens impact Keeping families in homes is the long-term priority High vacancy rate for homes with a defaulted loan is a challenge Streamline refinance will help families lower monthly payment Loan modification is important tool in

3 2 Conforming Rates Remain Near Record Lows, Jumbo Rates More Expensive Effective Interest Rate on 30-Year Fixed-Rate Conventional Mortgages (Percentage Points) Year Jumbo FRM % 7.4 7/20/ % % 6.15% /8/ % 30-Year Conforming FRM % 5.0 Jan-10 Dec-09 Nov-09 Oct-09 Sep-09 Aug-09 Jul-09 Jun-09 May-09 Apr-09 Mar-09 Feb-09 Jan-09 Dec-08 Nov-08 Oct-08 Sep-08 Aug-08 Jul-08 Jun-08 May-08 Apr-08 Mar-08 Feb-08 Jan-08 Dec-07 Nov-07 Oct-07 Sep-07 Aug-07 Jul-07 Jun-07 May-07 Apr-07 Mar-07 Feb-07 Jan-07 Source: HSH Associates (last data: week ending January 8, 2010) Note: Effective rate adds fees and points to the interest rate.

4 Banks Are Tightening Lending Standards Across All Lines of Business Net Percentage of Banks Tightening Credit Standards During Three Previous Months Prime Residential Loans Commercial Real Estate Source: Federal Reserve Board's Senior Loan Officer Survey (all residential loans through 2007Q1, prime residential starting 2007Q2; commercial real estate includes construction and land development); Last update: November 9,

5 $4,000 $3,750 $3,500 $3,250 $3,000 $2,750 $2,500 $2,250 $2,000 $1,750 $1,500 $1,250 $1,000 $750 $500 $250 $0 More Sales but Less Refinance Result in 10% Decrease in 2010 Originations Total Single-Family Mortgage Originations (Billions of Dollars) Sources: Freddie Mac, HUD, VA FHA & VA Conventional Refi Coventional Purchase Forecast '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 4

6 Job Loss Is the Main Hardship Reason Among Delinquent Prime Borrowers Hardship Reason Jan-Jun 2009 Unemployment or curtailment of income 56.8% Excessive obligation 19.3% Illness or Death in the Family 11.4% Marital difficulties 4.7% Inability to sell or rent property 2.4% Property problem or casualty loss 0.9% Employment transfer or military service 0.2% Extreme hardship 0.1% All other reasons 4.2% Source: Freddie Mac; Data cover only prime conventional conforming loans and are from sample of borrowers who made successful contact with their servicer. All Other Reasons includes: Abandonment of Property; Energy/Environment Cost; Incarceration; Payment adjustment; Payment Dispute; Servicing problem; Unable to contact borrower and other nondescript. 5

7 Recent Default Experience Is Unlike Any Previous Business Cycle Since the 1930s Prime conventional (incl. Alt-A) loans 90 days or more delinquent or in foreclosure (percent) Recession Year % Source: National Bureau of Economic Research, Mortgage Bankers Association (Prime Conventional includes Alt-A). 6

8 Increasing Delinquencies, Especially Subprime Loans 90 Days or More Delinquent or in Foreclosure (percent of number) All Loans Prime & Alt-A Subprime Source: Mortgage Bankers Association; Prime Loans includes Alt-A (Quarterly data not seasonally adjusted;1998q1-2009q3). 7

9 Relative to Serviced Loans, Subprime Accounts for a Very Large Share of Foreclosures Number of Foreclosures Started (Annual Rate in Thousands) Subprime Share of Loans Serviced in US Peak (2007): 14% Mid-2009: 11% 37% % 9% % 55% 54% 39% 39% 53% 46% 10% 45% 28% 28% 21% 15% 35% 33% 33% 33% 31% H1 Prime (includes Alt-A) FHA & VA Subprime Source: Mortgage Bankers Association National Delinquency Survey (2003 is only for second half). Numbers adjusted for 85% coverage. 8

10 Subprime, Alt-A ARMs, and Option ARMs Drive Foreclosures in the U.S Distribution of Loans Outstanding in the Percent U.S by Product, Year-end % SUBPRIME Distribution of Foreclosures Started in the U.S by Product During 2009H1 13% 37% % 12% 63% PRIME & Alt-A ARM FHA & VA PRIME & Alt-A FIXED RATE 24% 9% 30% 54 million Loans 1.4 million Foreclosures Source: Mortgage Banker s Association National Delinquency Survey. Numbers adjusted for 85% coverage. 9

11 Multifamily Default Rates at Banks and Savings Institutions Are Highest Since 1993 Delinquent or Non-current (Percent of Average Loans Outstanding) 6.0% 5.0% 4.0% 3.0% Noncurrent 3.6% 2.0% 1.0% days past due 1.1% 0.0% Note: Noncurrent loans the sum of loans 90 days or more past due, and loans in nonaccrual status. Source: FDIC 10

12 Highest Construction and Development Default Rates at Banks and Thrifts Since 1991 Delinquent or Non-current (Percent of Average Loans Outstanding) 15.0% Noncurrent 15.0% 12.0% 9.0% 6.0% 3.0% days past due 2.9% 0.0% Note: Noncurrent loans the sum of loans 90 days or more past due, and loans in nonaccrual status. Source: FDIC 11

13 Subprime and Alt-A Volume Quintupled 2001 to 2006, then Fell from 2006 to % 7.2% 7.9% 5.2% 2.7% 14.4% 33.2% 1.5% 20.0% 7.7% 57.1% 13.4% 20.1% 2.8% 62.0% 20.1% 16.1% 6.5% Single-family Originations 2001 $2.2 trillion 2006 $3.0 trillion 2008 $1.5 trillion Subprime and Alt-A $0.2 trillion $1.0 trillion $0.1 trillion Conventional, Conforming Prime Jumbo Prime Subprime Alt-A FHA & VA Home Equity Loans Source: Inside Mortgage Finance (by dollar amount) 12

14 GSE & GNMA Share Fell When Subprime Boomed; Today GSEs & GNMA Are Main Source of Funds MBS Share Issuance (Percent of MBS Issuance) Annual ( ) Quarterly ( ) 90% 80% 70% 60% 50% 40% Conventional, Prime, Fixed-Rate Lending Is Mainstay of Market ( ) Subprime, Non-Traditional Lending Boom ( H1) Subprime Crisis, Private-label MBS Collapse (2007H2-2009) 4 th quarter 2009: FRE & FNM 68% 30% 20% Ginnie Mae 28% 10% 0% Q Q Q Q Q Q Q Q4 Ginnie Mae Private-Label Freddie Mac and Fannie Mae Private-Label 4% Source: Inside MBS & ABS (The 2008 Mortgage Market Statistical Annual - Volume II), Inside MBS & ABS (January 8, 2010). 13

15 Private Label Securities Comprise 12% of Loans Outstanding but About a Third of Problem Loans Number of First Mortgages Outstanding (in millions) Bank and Thrift Portfolios 16% Private Label Securities 12% FHA & VA 13% Freddie Mac 23% Other Portfolio 1% Fannie Mae 34% Private Label Securities Fannie Mae Banks & Thrifts FHA & VA Freddie Mac Seriously Delinquent 1 st Mortgages (in millions) Other Portfolio Total: 54 Million Sources: FDIC, Freddie Mac, Fannie Mae, Mortgage Bankers Association, HUD, First American CoreLogic (LoanPerformance). Note: Data as of September 30, 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. Seriously delinquent categories do not sum to 4.7 million because Other Portfolio is not shown Total: 4.7 Million 14

16 Keeping People in Their Homes A Long-Standing Priority for Freddie Mac Single-Family Alternatives to Foreclosure (Number of Loans) 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Repayment Plans Loan Modifications Forbearance Agreements Pre-foreclosure Sales Q HAMP Trials Source: Freddie Mac 15

17 Challenge: High Vacancy Rates Impact Our Ability to Reach Borrowers Distressed Asset Roundtable & Exchange Vacancy Rate for Key States 1 (Overall Rate for 90+Foreclosure Loans for 10/31/2009 ) State Percent Vacant Arizona California Florida Georgia Illinois Michigan Nevada New York Ohio Pennsylvania Texas % 1: Vacancy Rate based on vacant/unknown properties, excludes any REO acquisitions.

18 Freddie Mac Plays A Leadership Role in Making Home Affordable Making Home Affordable Has Two Main Components: Easier Refinancing Lower rates for 4-5 million mortgages Subsidized Modifications $75 billion for 3-4 million mortgages 17

19 Freddie Mac Relief Refinance Mortgages Freddie Mac must own or guarantee Borrowers must be current over past 12 months LTVs up to 125% of current value Lenders generally will not have to re-underwrite 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 Conventional loans Must be originated by June 10,

20 Modification Program for At-Risk Borrowers $75 billion to subsidize loan modifications Modifications will follow uniform guidelines Reduces monthly payments to a 31 percent debt-toincome ratio Owner-occupied loans only Provides financial incentives for servicers and borrowers to initiate and sustain modifications Each GSE responsible for modifying their own loans Fannie Mae is Program Administrator for Non-GSE modifications Freddie Mac is Compliance Agent for Non-GSE modifications 19

21 Where to Get More Information Look for regular updates to our economic forecast, commentary and data at Contact us at 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 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 by Freddie Mac.