The total size of the mortgage market has been flat for a year. In its June report the Federal Reserve reported that the total market had declined from $14.68 trillion at year end 2008 to 14.60t. in March of 2009. The following looks at the moving deck chairs on this Titanic. The data comes from the June FRB Mortgages Outstanding report. This is March data. I have reviewed individual data from June 30th. I believe that the trends evident in the FRB report are continuing today.
The following (click on all charts to enlarge) looks at the outstandings for One-Four and Multifamily residences. Note that the total outstanding is down by $400b. year over year. The current total is equal to the levels of year-end 07.
The commercial lenders have kept their outstandings stable. The 4% increase over 18 months is probably not a reflection of their willingness to lend new money. This is a consequence of having to put old mortgages back on their balance sheets as a result of blown up SIVs and CMOs.
The following looks at the holdings of the Federal side of the equation and some of the components. Not surprising is that the balance sheets of the D.C. lenders has been growing. But, a year over year change of less than 10% is only an increase of $70b in increased funding requirements. The total of ‘on book’ residential mortgage assets is only $800 billion.
The Pool, or securitized, section is the more significant category. Of note is that the Fannie Mae (FNM)/Freddie Mac (FRE) side of this represents a combined increase on a year over year basis of just $100b. At the same time the much smaller Ginnie Mae has increased by $250b. That the Private Participants has declined by $500b or 20% over the past year and a half should be no surprise. That trend has continued in the past three months. The absence of private participation in the securitized market speaks for itself. The Shadow Banking system is taking a bank holiday. It is likely to be a long time before that holiday ends.
The following is a summary that looks at the private/public percentage of the residential mortgage market. The government already owns too high a percentage. That percent share has no-where to go but up.
The compound average growth rate of the mortgage market in the ten years that preceded 2007 was 12%. The total outstanding grew during that period from $6.8T to $14.6T. That $8 trillion increase in credit was the gas that fueled the trend-line GDP growth of 3%. It was also the gas that caused the costly fire in 2008.
I can’t imagine a return to 3% growth unless credit creation from mortgages resumes an upward trend. The Fed, Treasury and the D.C. lenders have done everything they could do to boost demand with historically low interest rates and 125% LTV loans. They have barely succeeded in keeping the total at a stable level. The higher interest rates that must come at some point will just add to the problem. Washington is running low on arrows.
The positive economic signs that keep popping up suggest that the economy has stabilized. We should not mistake that to believe that strong positive economic growth is around the corner. It is not. The implications on the future social costs (Medicare and Social Security) should be debated in light of the reduced long-term growth prospects.
- The rapid increase of Ginnie Mae’s participation in the mortgage market is worth highlighting. Ginnie is a private company owned by HUD. It is not a GSE. It has never been a public company. Unlike FNM/FRE the debt and guaranties of Ginnie are direct obligations of Treasury. There are no ambiguities on their status. As a result they can issue MBS with a guarantee at a lower cost than the old Agencies. Ginnie Mae did not fall into the trap of bad credit in the 04-07 period that killed FNM/FRE. Net-net Ginnie did what a government mortgage agency should have done. They supported the mortgage market and protected the taxpayer’s interest. Look for Ginnie Mae to assume much broader responsibilities in the future.
- In a report to Congress HUD contrasted its superior credit performance to the GSE’s (FNM/FRE). The following is from that report. In D.C. this kind of talk is like shooting a bazooka. I doubt they like each other very much.
- One hitch that I can’t understand is that there are very specific limits on the size of Ginnie. The Fed report put Ginnie at $680b. in March. They have been growing (and bragging) about increasing that number by $40b. a month. Therefore an estimate of their current guarantees outstanding is near $800b. As far as I can determine their current limit is only $640b.