Current State of the Housing Finance Industry
Jay BrinkmannVice President, Research and Economics
Mortgage Bankers Association
The Five Questions I Spend My Life Answering
How bad is it?
How bad is it going to get?
H l i it i t l t?How long is it going to last?
How did you guys screw up so bad?
What should be done to keep you from doing it again?again?
Mortgage Bankers Association2
Mortgage Payments Past Due 30 DaysSA, %
4. 4
4. 0
4. 4
4. 0
3. 6 3. 6
3. 2 3. 2
05009590858075
2. 8
2. 4
2. 8
2. 4
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05009590858075
Sour ce: Mor tgage Banker s Association
Mortgage Foreclosures Started: United StatesSA, %
0. 8 0. 8
0. 6
0 4
0. 6
0 40. 4
0. 2
0. 4
0. 2
050095908580750. 0 0. 0
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05009590858075
Sour ce: Mor tgage Banker s Association
Foreclosures Started by Loan Type (NSA)5.00
3.00
4.00
rcen
t
1.00
2.00Per
-
03 -
Q1
03 -
Q3
04 -
Q1
04 -
Q3
05 -
Q1
05 -
Q3
06 -
Q1
06 -
Q3
07 -
Q1
07 -
Q3
200
200
200
200
200
200
200
200
200
200
Prime Fixed Prime ARM Subprime FixedSubprime ARM FHA
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Subprime ARM FHA
Source: MBA National Delinquency Survey
Composition of Foreclosure Starts
% of % of Loans Outstanding
Foreclosures Started
Prime Fixed 63% 18%Prime Fixed 63% 18%Prime ARM 15% 19%Subprime Fixed 6% 12%Subprime Fixed 6% 12%Subprime ARM 7% 43%FHA & VA 9% 9%
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Source: MBA National Delinquency Survey
California and Florida Share of Total US
% of Prime ARM
% of Prime ARM Foreclosure
St t% of Subprime
ARM
% of Subprime ARM Foreclosure
St tARMs Starts ARMs Starts
California 25.8% 27.9% 17.3% 21.4%
Florida 10.6% 14.5% 10.8% 12.4%
Combined 36.4% 42.4% 28.1% 33.8%
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Source: MBA National Delinquency Survey
Subprime ARM Foreclosure Starts
Approximate Number of Foreclosure Starts
150,000
50,000
100,000
-2005 - Q3 2006 - Q3 2007 - Q3
US (w/o CA & FL) CA & FL
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Source: MBA National Delinquency Survey
Investor Property Share of Foreclosure Starts 2007 Q3
Prime ARM
Prime Fixed
Subprime ARM
Subprime Fixed All Loans
Arizona 26% 16% 21% 28% 22%
California 11% 11% 19% 20% 16%
Florida 27% 18% 21% 27% 22%
Nevada 24% 14% 20% 33% 22%
US 18% 14% 18% 28% 18%
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Source: MBA
Question: How Bad Is It Going to Get?
Answer: Need to Focus on Drivers of Supply and Demand for Houses
Mortgage Bankers Association10
Top-ten and Bottom-ten States in Terms of Percent Change in Population, July 2006 – July 2007(With Employment Change Nov 2006 – Nov 2007)
2.9%2.8%
2.6%2.4%
NevadaArizona
UtahIdaho
G i 2.2%2.2%
2.1%2.0%2.0%
GeorgiaNorth Carolina
TexasColoradoWyoming
1.8%
0.2%0.2%0 2%
South Carolina
MassachusettsNew JerseyConnecticut 0.2%
0.2%0.2%
0.1%0.1%
ConnecticutWest Virginia
MaineNew YorkVermont
0.0%-0.3%
-0.4%
-3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0%
OhioMichigan
Rhode Island
Employment ChangePopulation Change
Mortgage Bankers Association11
Source: Census Bureau and Bureau of Labor Statistics
New Homes Available For Sale Remain at Elevated Levels
12Thousands Months
525
575
101112
Months’ Supply of New
Homes on the MarketNew Homes for Sale
(left axis)
375
425
475
789(right axis)
(left axis)
New Homes For Sale
275
325
375
456
2251980- Jan
1982- Jan
1984- Jan
1986- Jan
1988- Jan
1990- Jan
1992- Jan
1994- Jan
1996- Jan
1998- Jan
2000- Jan
2002- Jan
2004- Jan
2006- Jan
2008- Jan
3
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Source: Census Bureau
Mortgage Bankers Association13
Two remaining questions:
How big of a problem is the ARM rate reset issue?
What should be done about the subprime market?
Mortgage Bankers Association14
6-Month LIBOR Rates
5 005.506.00
4.004.505.00
ARM Reset Issue Is Largely
2 503.003.50
ARM Reset Issue Is Largely Going Away!
2.50
1 20
07
5 20
07
2 20
07
16 2
007
21 2
007
25 2
007
30 2
007
3 20
07
8 20
07
2 20
07
7 20
07
21 2
008
Jan
Feb
Mar
1
Apr
1
May
2
Jun
2
Jul 3
Sep
Oct
Nov
1
Dec
1
Jan
2
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Subprime Originations
200
120140160180
ns
06080
100120
$ bi
llion
Subprime Lending Is G i A !
02040
20 20 20 20 20 20
Going Away!
2002
2003
2004
2005
2006
2007
Source: Inside B&C Lending
Mortgage Bankers Association16
Subprime Originations as % of Total Originations
30%
20%
25%
5%
10%
15%
0%
5%
200
200
200
200
200
200002
003
004
005
006
007
Source: Inside B&C Lending and MBA Mortgage Finance Forecasts
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Opportunities in 2008
Reduced competition in the mortgage industry will lead to more rational pricing and underwriting.
Well-capitalized institutions with flexible execution will dominatewill dominate.
Affordability has improved in areas where home i h f ll Th bilit t lif iprices have fallen. The ability to qualify remains a
question. FHA will grow in importance.
Mortgage Bankers Association18
Change in Number of Owner- and Renter-occupied Households, Year-over-year (additive)
2000
2500 Change in owner-occupied householdsChange in renter-occupied households
Thousands of households
1000
1500
2000
0
500
-1000
-500
-1500
1990
- Q
1
1991
- Q
1
1992
- Q
1
1993
- Q
1
1994
- Q
1
1995
- Q
1
1996
- Q
1
1997
- Q
1
1998
- Q
1
1999
- Q
1
2000
- Q
1
2001
- Q
1
2002
- Q
1
2003
- Q
1
2004
- Q
1
2005
- Q
1
2006
- Q
1
2007
- Q
1
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1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2
Source: Census Bureau and MBA
New and Existing Home SalesNew and Existing Home Sales
Millions of homes
8
6
8Existing New
4
2
01999 2000 2001 2002 2003 2004 2005 2006 2007 2008*
Source: Census Bureau and National Association of Realtors
Mortgage Bankers Association20*Forecast; 15% drop in existing home sales and 21% drop in new home sales
Source: Census Bureau and National Association of Realtors
Annual SingleAnnual Single--Family OriginationsFamily Originations
$ Billion
3,500
4,000
2,500
3,000
1,500
2,000
0
500
1,000
Source: Mortgage Bankers Association
01999 2000 2001 2002 2003 2004 2005 2006 2007 2008*
Purchase Refinance
Mortgage Bankers Association21
Source: Mortgage Bankers Association
*Forecast: 21% drop in purchase originations and 11% drop in refinance originations
Contact Information & MBA Resources
Jay Brinkmann [email protected]
1919 Pennsylvania Ave - Washington, DC 20006202-557-2739
Research and Forecasts:htt // t b k /R h dF t /E i O tl k dF t
202 557 2739MBA homepage: www.mortgagebankers.org
http://www.mortgagebankers.org/ResearchandForecasts/EconomicOutlookandForecasts
Research Data:http://www.mortgagebankers.org/ResearchandForecasts/ProductsandSurveys
MBA Research DataNotes:http://www.mortgagebankers.org/ResearchandForecasts/EconomicOutlookandForecasts/DataNotes.htm
Research Institute for Housing America:http://www housingamerica org/sitemap htmlhttp://www.housingamerica.org/sitemap.html
Home Loan Learning Center:http://www.homeloanlearningcenter.com/default.html
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MBA Newslink:http://www.mortgagebankers.org/NewsandMedia/MBANewsLink