housing and mortgage market update 6-16-2010

8/9/2019 Housing and Mortgage Market Update 6-16-2010

1/21

Housing and Mortgage MarketUpdate

Guaranteed Rate-Chicago Association of RealtorsChicago, IL

June 16, 2010

Frank E. Nothaft

Chief Economist


2/21

Office of the Chief Economist1


Mortgage Rates Low, But Defaults Rising; LoanModifications Will Help Reduce Overall Impact

Mortgage rates low, underwriting more careful 30-year fixed mortgage rates likely stay in 4.75% to 5.25% range in 2010 Originations 25% 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 Streamline refinance will help families lower monthly payment Loan modification is important tool in 2010


3/21


Low Interest Rates & Falling Home Prices HaveIncreased Housing Affordability

Source: National Association of Realtors Composite Housing Affordability Index (% of median

priced home affordable on median income with conventional mortgage and 20% down),

seasonally adjusted; Freddie Mac Primary MortgageMarket Survey

60

90

20

50

80

9 9 9 9 9

9

98

98

98

98

989

99

99

99

99

999

200

200

200

200

2009

4.0

7.5

.0

4.5

8.0Index Percent

NAR AffordabilityIndex

(left scale)

30-year FixedMortgage Rate

(right scale)

Index = 00 meansmedian income buysmedian priced home


4/21


5/21

Office of the Chief EconomistOffice of the Chief Economist

Building Permits Fell in U.S. Over Past Years

Housing Permits U.S. (Thousands)

Sources: Bureau of Census (Chicago-Joliet-Naperville IL MSA) and National Bureau ofEconomic Research

United States

Chicago IL

Recession

Housing Permits Chicago (Thousands)

%Drop

%Drop


6/21


7/21


8/21

Office of the Chief Economist

Large Inventory Surplus Remains in Market

- 00

0

00

00

00

400

500

600

00

800

900

000

996 000 004

Source: Bureau of Census (1 6-2004:Annual Data, 2005Q12010Q1:Quarterly Data)Note: The excess unsold homes were estimated based on the average vacancy rate from1 6Q1 to 2005Q4 (1.7%).

Excess Unsold Homes for Sale (Numbers in Thousands)

Annual Data Quarterly Data

005 006 00

Q Q4 Q Q4 Q Q4 Q

008

Q4 Q

009

Q4 Q

0 0


9/21


U.S. House Prices Have Experienced aCumulative Decline of 2 % Since June 2

2.1

5.1

2.3

1.6

2.7

4.4

2.4

1.2 1.2

1.9

-0.7

-1.3

0.60.8

-2.1

-4.0

-2.8

0.0

-2.7

-6.5

-2.0

2.5

0.0

-2.4

-0.9

2

2

2 2 2 2 2 2 2 2 2 2 2 2 2

uarterly Growth Rates (Numbers in Percentages)

Note: National home prices use the internal Freddie Mac Index, which is a value-weighted based on

FreddieMacs single-family portfolio. The US index is a monthly series; quarterly growth rates are

calculated as a 3-month change based on the final month of each quarter.

Source: Freddie Mac


10/21


House Price Declines Largely Occur in Stateswith Excess acant-for-Sale Homes

-3 %

- %

- 2%

-3 %

> 2%

-2 to 2%

-2 to -1 %

-1 to -2%

Cumulative Change, 2 Q1 to 2 1 Q1

Source: FHFA Purchase-Only House Price Index (NSA) by State, 2006Q1 and 2010Q1.

< -2 %

-2 %


11/21


12/21


Job Loss Is the Main Hardship Reason AmongDelinquent Prime Borrowers

Source: Freddie Mac; data represent prime borrowers who were delinquent on conventional conforming loans owned by Freddie

Mac and had successful contact with their servicer during 200 . All Other Reasons includes: Abandonment of Property;

Energy/Environment Cost; Incarceration; Payment adjustment; Payment Dispute; Servicing problem; Unable to contact borrower and

other nondescript.

Hardship Reason

Unemployment or curtailment of income .3%

Excessive obligation 1 .3%

Illness or Death in the Family 11.2%Marital difficulties . %

Inability to sell or rent property 2. %

Property problem or casualty loss 1. %

Employment transfer or military service . %Extreme hardship .1%

All other reasons 3. %

2


13/21



Unemployment Rate (U.S. . % in May)Expected to Decline Gradually

11

1

1 1 1 1

2

1 1 1 1 1

2

1 1 1 2 2

2

2 2 2 2

1

Unemployment Rate (Percent) Forecast

Sources: Bureau of Labor Statistics (Chicago-Joliet-Naperville, IL MSA), National Bureau ofEconomic Research and Freddie Mac.

National Recession

United States

Nov-Dec 2:1 . %

2 11:Q. %

Illinois

Chicago-Joliet-Naperville

IL


14/21



Recent Default Experience Is Unlike AnyPrevious Business Cycle Since the 1 3 s

1

2

3

1

2

1 1 1 1 1

2

1 1 1 1 1

2

1 1 1 1 1

2

1 1 1 2 2

2

2 2 2 2

1

Prime conventional loans days or more delinquent or in foreclosure (percent)

Recession Year

Source: National Bureau of Economic Research,Mortgage Bankers Association(Prime Conventional includes Alt-A).

1%


15/21



Increasing Delinquencies, Especially Subprime

1

1

1

1 1

11

All oans rime & Alt-A Subprime

oans Days or More Delinquent or in Foreclosure (percent of number)

Source: Mortgage Bankers Association; Prime Loans includes Alt-A (Quarterlydata not seasonally adjusted;1 Q1-2010Q1).


16/21


Prime & Alt-A Delinquencies Are Highest in AreasWith Largest Negative Equity Shares

National = 7.1% Seriously Delinquent

Illinois = 8.0%

(90+ days delinquent or in foreclosure, Prime & Alt-A Conventional)

Data as of March 31, 2010

Below 3. %

. - . %

Above 1 %

. - . %

. - . %

Source: Mortgage Bankers Association

1 . %

1 . %

1 .2%

1 . %

3. -3. %


17/21



Subprime, Alt-A ARMs, and Option ARMs DriveForeclosures in Illinois

Source:Mortgage Bankers Association National Delinquency Survey. Numbers adjusted for 5% coverage.

1

11

1

1

1

1

Distribution of oans Outstandin in Ib roduct: anuar 1,

Distribution of Foreclosures Started in Ib roduct: an-Dec

SUB RIME

FHA &A

RIME & Alt-AARM

RIME & Alt-AFIXED RATE

.Million

Thousand

Million oans 11 Thousand Foreclosures


18/21


tri ion

1%

1 %

1 1%

% 1 %

%

1

tri ion

1%

%

%

1%

%%

Subprime and A t-A o ume Quintup ed 1 to, then Fe from to

Source: Inside Mortgage Finance (by dollar amount)

A t-A Home EquityLoans

Conventiona ,Conforming Prime

Jumbo Prime Subprime FHA& A

1 tri ion

%

1%

%

%

%

%

Sing e-fami y

OriginationsSubprimeand A t-A tri ion 1 tri ion 1 tri ion


19/21


20/21



Private Label Securities Comprise 1 % of LoansOutstanding but Almost 3 % of Problem Loans

reddie Mac23%

annie Mae

33%

A VA

13%

Private Label

Securities

1 %

ank and

hrift

Portfolios

1 %

Other

%

Number of First Mortgages Outstanding(in millions)

Seriously Delinquent 1st Mortgages(in millions)

OtherPortfolio

otal: MillionSources: FDIC, Freddie Mac, Fannie Mae, Mortgage Bankers Association, HUD, First American CoreLogic (LoanPerformance). Note:

Data as of December 31, 200

. Seriously Delinquent loans were at least

0 days delinquent or in foreclosure. Components may notsum to 100% because of rounding. Freddie Mac and Fannie Mae figures include whole loans held in portfolio and in guaranteed

securities outstanding.

1

1

2 1 1 2 1 1

reddieMac

annieMae

ankshrifts

AVA

Private LabelSecurities

otal: 3 Million

Other


21/21

Where to Get More InformationLook for regular updates to our economic forecast,commentary and data at

www.FreddieMac.com/news/finance

Contact us at [email protected]

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.

2010 by Freddie Mac.

housing and mortgage market update 6-16-2010

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