Mortgage Industry

Demographic factors such as the size of various age groups and changes in disposable income as well as interest rates, the desirability of other investment options and economic conditions such as unemployment all influence the residential mortgage market.

In the 1990s the housing market entered a period of expansion, marked by a relaxation of mortgage underwriting requirements, the introduction of innovative mortgage products and a rise in median home prices. In 2007, with the nation entering a painful recession, conditions changed, as home prices dropped, credit tightened and mortgage defaults rose. There were some tentative signs of improvements in the housing and mortgage markets in 2011, with sales of new and existing homes beginning to rise at the end of the year, according to Harvard’s 2012 State of the Nation’s Housing Report. In 2011 about 1.45 percent of U.S. housing units (one in 69) had at least one foreclosure filing during the year. This compares with 2.23 percent in 2010, 2.21 percent in 2009 and 1.84 percent in 2008.

In September 2008, during the recession, the federal government took over and put into conservatorship Fannie Mae and Freddie Mac, two government-sponsored enterprises (GSE) that own or guarantee about half the nation’s residential mortgages. GSEs hold the largest share of mortgage assets among the sectors tracked by the Federal Reserve’s Flow of Funds reports. In 2011 GSEs held 45 percent of mortgage assets, followed by U.S. depository institutions (including commercial banks and savings institutions) with 25 percent.

Home mortgage debt declined for the fourth consecutive year in 2011, with mortgage debt outstanding on single-family homes dropping by 2.5 percent from $10.5 trillion in 2010 to $10.3 trillion in 2011. Commercial mortgage debt outstanding, which declined for the third consecutive year, fell by 3.5 percent from $2.3 trillion to $2.2 trillion in 2011.

HOME MORTGAGES BY HOLDER, 2007-2011 (1)

($ billions, end of year)

  2007 2008 2009 2010 2011
Total assets $11,176.0 $11,071.1 $10,872.9 $10,526.9 $10,268.2
Household sector 90.8 91.2 83.2 75.2 67.2
Nonfinancial corporate business 25.0 20.2 17.7 16.8 15.9
Nonfinancial noncorporate business 15.4 14.3 13.9 13.3 13.4
State and local governments 85.7 83.8 88.2 89.8 87.8
Federal government 13.7 16.4 22.1 23.9 24.8
U.S.-chartered depository institutions (2) 3,068.0 2,883.6 2,686.6 2,614.0 2,539.6
Foreign banking offices in U.S. 0.0 7.0 0.9 1.1 1.3
Banks in U.S.-affiliated areas 21.5 22.9 22.6 20.1 17.8
Credit unions 280.2 312.2 316.9 317.0 320.5
Life insurance companies 9.4 8.6 6.4 6.2 7.5
Private pension funds 1.2 1.3 2.0 1.9 1.6
State and local government retirement funds 3.5 3.4 3.3 3.4 3.3
GSEs (3), (4) 447.9 456.6 445.4 4,701.5 4,603.2
Agency- and GSE (3)-backed mortgage pools (4) 4,371.8 4,864.0 5,266.5 1,068.8 1,216.8
Asset-back security issuers 2,188.7 1,876.0 1,556.9 1,284.4 1,092.2
Finance companies 472.7 375.4 327.7 280.6 247.2
REITs (5) 80.7 34.3 12.6 8.9 8.1
Home equity loans included above (6) 1,131.9 1,115.1 1,032.7 950.2 872.7
     U.S.-chartered depository institutions 872.7 894.7 841.4 783.3 723.1
     Foreign banking offices in U.S. 0.0 0.8 0.3 0.3 0.3
     Credit unions 94.1 98.7 94.6 88.2 82.2
     Asset-backed security issuers 70.5 45.8 30.9 22.3 17.7
     Finance companies 94.5 75.1 65.5 56.1 49.4

(1) Mortgages on 1 to 4 family properties.
(2) Includes savings banks and commercial banks.
(3) Government-sponsored enterprise.
(4) Beginning in 2010 Fannie Mae and Freddie Mac moved the unpaid balances of securitized mortgages onto their consolidated balance sheets, reflecting new accounting rules. In response to this shift, the data for years after 2009 are included on the Government- Sponsored Enterprises chart on page __. (See “consolidated trusts.”)
(5) Real Estate Investment Trusts.
(6) Loans made under home equity lines of credit and home equity loans by junior liens. Excludes home equity loans held by mortgage companies and individuals.

Source: Board of Governors of the Federal Reserve System, June 7, 2012

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MORTGAGE DEBT OUTSTANDING, 2007-2011

($ billions, end of year)

  2007 2008 2009 2010 2011
Total mortgages $14,521.1 $14,609.9 $14,329.2 $13,814.9 $13,477.0
Home 11,176.0 11,071.1 10,872.9 10,526.9 10,268.2
Multifamily residential 784.6 837.7 847.0 837.8 844.2
Commercial 2,447.9 2,566.4 2,478.1 2,314.0 2,232.4
Farm 112.7 134.7 131.3 136.3 132.2

Source: Board of Governors of the Federal Reserve System, June 7, 2012.

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AVERAGE CONVENTIONAL SINGLE-FAMILY MORTGAGES, 2002-2011 (1)

($000)

Year Mortgage loan
amount
Purchase
price
Adjustable
rate mortgage
(ARM) share (2)
2002 $204.3 $289.1 17%
2003 205.3 297.6 18
2004 220.9 312.0 35
2005 244.1 345.3 30
2006 248.7 342.7 22
2007 243.8 326.0 11
2008 229.6 319.8 7
2009 228.4 322.2 NA
2010 222.6 314.5 5
2011 215.2 296.9 12

(1) National averages, all homes.
(2) ARM share is the percent of total volume of conventional purchase loans. Does not include interest-only mortgages.

NA=Data not available.

Source: 2012 State of the Nation's Housing, Joint Center for Housing Studies, Harvard University.

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  • Adjustable rate mortgages, loans in which the interest rate is adjusted periodically according to a pre-selected index, dropped from a high of 62 percent of mortgages in 1984 to just 5 percent of mortgages in 2010, according to Harvard's 2012 State of the Nation's Housing report. In 2011 they increased to 12 percent of mortgages, the highest share since 2006.

NUMBER OF MORTGAGE LOAN ORIGINATIONS, 2002-2011 (1)

(millions)

Year Purchase Refinance Total
2002 6.9 11.7 18.6
2003 7.4 15.7 23.1
2004 6.9 8.0 14.9
2005 7.2 7.2 14.5
2006 6.6 5.8 12.3
2007 5.2 5.1 10.4
2008 3.5 3.6 7.1
2009 3.3 6.1 9.4
2010 2.9 5.5 8.4
2011 2.6 4.3 6.9

(1) Includes mortgages on 1 to 4 family homes.

Source: U.S. Department of Housing and Urban Development, Historical Data Report, Spring 2012.

  • In 2011, 6.9 million home mortgages were originated, down from 18.6 million in 2002. In both years, about 60 percent were for refinancing as opposed to purchases.
  • In 2011, 2.6 million mortgages were for home purchases, down from 6.9 million in 2002.

FORECLOSURES

The number of properties in some phase of foreclosure totaled 1.9 million in 2011, down 34 percent, compared with 2010; down 33 percent, compared with 2009; and down 19 percent from 2008, according to a report from RealtyTrac, an online marketplace for foreclosure properties. The report also shows that 1.45 percent of all U.S. housing units (one in 69) received at least one foreclosure filing during the year, down from 2.23 percent in 2010, 2.21 percent in 2009 and 1.84 percent in 2008.

TOP TEN STATES BY FORECLOSURE RATE, 2011

Rank State Percent of housing units
with foreclosure filings (1)
1 Nevada 6.25%
2 Arizona 4.14
3 California 3.19
4 Georgia 2.71
5 Utah 2.32
6 Michigan 2.21
7 Florida 2.06
8 Illinois 1.95
9 Colorado 1.78
10 Idaho 1.00

(1) Foreclosure filings include foreclosure-related documents in all phases of foreclosure, including defaults, auction notices and repossessions by banks. A single property may have more than one filing.

Source: RealtyTrac Inc., http://www.realtytrac.com/trendcenter.

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HOME EQUITY MORTGAGE LOANS

Home equity loans, in which the borrower's home serves as collateral, are generally used for major items such as education, home improvements or medical bills, as opposed to day-to-day expenses. The dollar value of home equity loans outstanding dropped from a record high of $1.13 trillion in 2007 to $872.7 billion in 2011, down $252.9 billion, or 23 percent.

HOME EQUITY MORTGAGE LOANS BY HOLDER, 2007-2011 (1)

($ billions, end of year)

  2007 2008 2009 2010 2011
Total $1,131.9 $1,115.1 $1,032.7 $950.2 $872.7
U.S.-chartered depository institutions (2) 872.7 894.7 841.4 783.3 723.1
Foreign banking offices in U.S. 0.0 0.8 0.3 0.3 0.3
Credit unions 94.1 98.7 94.6 88.2 82.2
Asset-backed security issuers 70.5 45.8 30.9 22.3 17.7
Finance companies 94.5 75.1 65.5 56.1 49.4

(1) Loans made under home equity lines of credit and home equity loans secured by junior liens, such as second mortgages, which are subordinate to another mortgage. Excludes home equity loans held by individuals.
(2) Includes savings banks and commercial banks.

Source: Board of Governors of the Federal Reserve System, June 7, 2012.

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SUBPRIME MORTGAGE LOANS

Subprime loans are offered to applicants with an incomplete or less than perfect credit record. The subprime interest rate is generally higher than the prevailing rate because of the additional risks involved in lending to less creditworthy applicants. During the housing boom years, which began in the 1990s, the subprime industry flourished, with lenders extending credit to borrowers previously unable to qualify for loans. By 2007 the tide had turned; subprime mortgages were harder to obtain and defaults were on the rise.

The delinquency rate for subprime loans in the fourth quarter of 2011 was 19.67 percent for subprime fixed loans and 22.40 percent for subprime adjustable rate mortgage (ARM) loans, according to a survey by the Mortgage Bankers Association. This marked an improvement from a 21.26 percent delinquency rate for subprime fixed loans and a 25.32 percent delinquency rate for subprime ARM loans in fourth quarter 2010. By comparison the delinquency rate was 4.12 percent for prime fixed loans in fourth quarter 2011 and 4.51 percent for prime fixed loans in fourth quarter 2010.

GOVERNMENT-SPONSORED ENTERPRISES

The Federal National Mortgage Association (Fannie Mae) and the Federal Housing Administration were established by the Roosevelt Administration in the 1930s to promote homeownership at a time when mortgage terms were very difficult. The purpose of the FHA was to insure loans, while Fannie Mae was created to purchase insured loans, thus freeing up more bank capital that could be invested in more mortgage loans. In 1970 the Federal Home Loan Mortgage Corporation, (Freddie Mac) was launched to serve a similar role as Fannie Mae in adding liquidity and affordability to the housing market. Fannie Mae was converted from a federal agency to a publicly traded company in 1968; Freddie Mac went public in 1989.

Fannie Mae and Freddie Mac are known as government-sponsored enterprises (GSE), privately owned, federally chartered corporations with a public purpose. Loans purchased by the GSEs may be packaged into securities, known as mortgage-backed securities, and sold to investors in what is known as the secondary market. Although they are private corporations, Fannie Mae and Freddie Mac have an implicit guarantee of federal support.

The two GSEs faced steep losses during the financial downturn as the mortgages they bought and sold defaulted at unexpected rates. To reassure investors and provide continued liquidity in the housing market, the federal government put Fannie Mae and Freddie Mac in conservatorship in 2008, giving management control to the newly created Federal Housing Finance Agency (FHFA). The FHFA also oversees another GSE not in receivership, the Federal Home Loan Banks (FHLBs). The FHLB make loans to community lending institutions that use the funds to support home mortgage lending and other local investments, such as small business and agricultural loans.

The GSEs' role in the housing market has increased since the downturn. In 2011 mortgages held or securitized by Freddie Mac and Fannie Mae accounted for $5.3 trillion, or 47.3 percent, of residential mortgage debt outstanding, up from 38.8 percent in 2006. In 2011 the U.S. Treasury announced plans to reduce the role of Fannie Mae and Freddie Mac, with its ultimate goal the winding down of the two institutions. In 2012 it announced steps to expedite the pace of the wind down, increasing the reduction in the GSE’s portfolios to 15 percent annually, up from the previously agreed upon 10 percent.

GSE SHARE OF RESIDENTIAL MORTGAGE DEBT, 1990-2011 (1)

(1) Includes Fannie Mae and Freddie Mac. GSEs are government-sponsored enterprises.

Source: Federal Housing Finance Agency.

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FEDERAL HOUSING ADMINISTRATION

The Federal Housing Administration (FHA), created in the 1930s to promote home ownership, provides mortgage insurance on loans made by lenders that meet its standards. FHA loans require a smaller cash investment than convention loans. In 2011, 29.8 percent of home mortgage originations were guaranteed by the FHA (based on number of loans), up from 6.1 percent in 2007. The FHA's total single family home loan portfolio was $1 trillion in 2011. Its capital reserves were 0.24 percent of total insurance in force in 2011, below the congressional mandated 2 percent, reflecting expected losses on loans made prior to 2009.

PERCENT OF HOME MORTGAGES INSURED BY THE FHA, 2002-2011 (1)

(1) 1 to 4 family mortgages. Excludes refinance mortgages.

Source: Federal Housing Administration (FHA).

GOVERNMENT-SPONSORED ENTERPRISES (GSE), 2007-2011 (1)

($ billions, amounts outstanding, end of year)

  2007 2008 2009 2010 2011
Total financial assets $3,174.3 $3,407.9 $3,047.3 $6,721.1 $6,479.8
Checkable deposits and currency 13.7 88.3 99.4 63.4 72.7
Time and savings deposits 46.6 68.5 25.7 26.1 13.4
Federal funds and security RPs (2) (net) 142.7 114.5 122.1 150.0 111.9
Credit market instruments 2,829.5 3,037.5 2,699.7 6,333.1 6,133.4
     Open market paper 27.7 6.8 9.7 9.9 6.5
     U.S. Government securities 718.4 926.8 946.4 432.2 434.3
          Treasury securities 15.5 16.8 21.9 55.2 75.4
          Agency- and GSE (3)-backed securities 702.9 910.0 924.5 377.0 358.9
     Municipal securities 33.3 31.3 29.1 24.9 21.0
     Corporate and foreign bonds 464.4 386.6 310.8 293.9 260.5
     Other loans and advances 942.6 980.7 695.9 551.3 487.0
          Farm Credit System 75.5 80.3 80.0 87.3 83.8
          Federal Home Loan Banks 867.1 900.5 615.9 464.0 403.3
     Mortgages 643.1 705.3 707.7 5,021.0 4,924.0
          Home 447.9 456.6 445.4 4,701.5 4,603.2
               Consolidated trusts (4) 0.0 0.0 0.0 4,141.0 4,032.1
               Other 447.9 456.6 445.4 560.5 571.1
          Multifamily residential 147.7 190.2 204.4 256.5 259.2
               Consolidated trusts (4) 0.0 0.0 0.0 75.4 99.9
               Other 147.7 190.2 204.4 181.1 159.4
          Farm 47.6 58.5 57.9 63.0 61.6
Miscellaneous assets 141.7 99.1 100.3 148.6 148.5
Total liabilities $3,081.3 $3,390.2 $2,977.0 $6,589.1 $6,377.9
Credit market instruments 2,910.2 3,181.9 2,706.6 6,434.5 6,247.3
          GSE issues (5) 2,910.2 3,181.9 2,706.6 6,434.5 6,247.3
               Consolidated trusts (4) 0.0 0.0 0.0 4,216.4 4,132.0
               Other 2,910.2 3,181.9 2,706.6 2,218.1 2,115.4
Miscellaneous liabilities 171.1 208.2 270.4 154.6 130.6

(1) Federal Home Loan Banks, Fannie Mae, Freddie Mac, Federal Agricultural Mortgage Corportation, Farm Credit System, the Financing Corporation and the Resolution Funding Corporation. Beginning 2010 includes almost all Fannie Mae and Freddie Mac mortgage pools previously included in the Agency and Government-Sponsored Enterprise (GSE)-Backed Mortgage Pools chart on page __.
(2) Short-term agreements to sell and repurchase government securities by a specified date and at a set price.
(3) Government-sponsored enterprise.
(4) The unpaid balance of securitized mortgages Fannie Mae and Freddie Mac moved on to their balance sheets in 2010 in response to new accounting rules.
(5) Such issues are classified as agency- and GSE-backed securities.

Source: Board of Governors of the Federal Reserve System, June 7, 2012.

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AGENCY- AND GOVERNMENT-SPONSORED ENTERPRISE (GSE)-BACKED MORTGAGE POOLS, 2007-2011 (1)

($ billions, amounts outstanding, end of year)

  2007 2008 2009 2010 2011
Total financial assets  $4,464.4  $4,961.4  $5,376.7  $1,139.5  $1,304.8
Home mortgages 4,371.8 4,864.0 5,266.5 1,068.8 1,216.8
Multifamily residential mortgages 88.1 92.8 105.7 66.9 86.4
Farm mortgages 4.5 4.7 4.5 3.8 1.7
Total pool securities (liabilities) (2) $4,464.4 $4,961.4 $5,376.7 $1,139.5 $1,304.8

(1) GNMA, Fannie Mae, Freddie Mac, Federal Agricultural Mortgage Corporation and Farmers Home Administration pools. Beginning in 2010 almost all Fannie Mae and Freddie Mac mortgage pools were consolidated into the Government-Sponsored Enterprises (GSE) chart shown on page __ in response to new accounting rules. Also includes agency- and GSE-backed mortgage pool securities used as collateral for agency- and GSE-backed collateralized mortgage obligations (CMOs) and privately issued CMOs. Excludes Federal Financing Bank holdings of pool securities.
(2) Such issues are classified as agency- and GSE-backed securities.

Source: Board of Governors of the Federal Reserve System, June 7, 2012.

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TOTAL MORTGAGES HELD OR SECURITIZED BY FANNIE MAE AND FREDDIE MAC AS A PERCENTAGE OF RESIDENTIAL MORTGAGE DEBT OUTSTANDING, 2002-2011

($ millions)

Year Fannie Mae Freddie Mac Combined GSEs (1) Residential mortgage debt outstanding Combined GSE share (1)
2002 $1,823,577 $1,297,081 $3,120,658 $6,922,438 45.1%
2003 2,198,604 1,397,630 3,596,234 7,796,871 46.1
2004 2,325,256 1,505,531 3,830,787 8,889,723 43.1
2005 2,336,807 1,684,546 4,021,353 10,064,300 40.0
2006 2,506,482 1,826,720 4,333,202 11,165,600 38.8
2007 2,846,812 2,102,676 4,949,488 11,960,600 41.4
2008 3,081,655 2,207,476 5,289,131 11,908,700 44.4
2009 3,205,517 2,250,539 5,456,056 11,719,900 46.6
2010 3,188,348 2,164,859 5,353,207 11,364,700 47.1
2011 3,184,504 2,075,394 5,259,898 11,112,400 47.3

(1) Fannie Mae and Freddie Mac combined. GSEs are government-sponsored enterprises.

Source: Federal Housing Finance Agency.

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MORTGAGE STATUS OF OWNER OCCUPIED HOUSING UNITS, 2010

Mortgages  
Number of owner occupied housing units with a mortgage 50,339,500
Percent of units of owner occupied housing with mortgage 67.2%
Mortgage status Percent
With either a second mortgage or home equity loan, but not both 21.7%
     Second mortgage only 5.7
     Home equity loan only 16.1
Both second mortgage and home equity loan 0.9
No second mortgage and no home equity loan 77.4

Source: U.S. Department of Commerce, Census Bureau, American Community Survey.

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REVERSE MORTGAGES

Reverse mortgages are special mortgages that allow homeowners over age 61 to sell their homes to a bank in exchange for monthly payments, a lump sum or a line of credit. The Home Equity Conversion Mortgage (HECM) is the federally insured reverse mortgage product. It is insured by the Federal Housing Administration, a branch of the U.S. Department of Housing and Urban Development. HECMs now account for nearly all reverse mortgages.

REVERSE MORTGAGES: ANNUAL ORIGINATION VOLUME FOR HOME EQUITY CONVERSION MORTGAGES (HECMs), FISCAL YEAR 2008-2012 (1)

(1) HECMs are federally insured reverse mortgage products.
(2) Through April 2012; fiscal year ends September 30.

Source: National Reverse Mortgage Lenders Association.

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  • After increasing steadily since 2001, the volume of reverse mortgages declined every year after 2009.

CONVENTIONAL HOME PURCHASE LOANS ORIGINATED BY RACIAL/ETHNIC IDENTITY AND INCOME OF BORROWERS, 2007 AND 2011 (1)

  2007 2011
  Number Amount
($000)
Number Amount
($000)
Race/ethnic identity        
American Indian/Alaska native 19,771 $3,747,005 4,381 $651,199
Asian 204,558 57,840,877 101,694 28,609,955
Black or African American 280,313 48,926,133 34,095 5,033,911
Hispanic or Latino 416,344 80,604,881 73,223 11,542,607
White 3,202,013 637,296,207 1,081,823 223,474,847
Income (2)        
Less than 50% 194,325 16,821,346 97,325 8,130,696
50% to 79% 644,634 77,168,841 216,674 26,300,930
80% to 99% 470,877 68,119,782 144,141 22,292,509
100% to 119% 433,034 70,249,072 133,131 23,711,290
120% or more 2,285,182 599,911,887 746,913 211,365,577
Income not available 165,064 39,171,694 43,003 10,008,681

(1) Includes 1 to 4 family and manufactured homes.
(2) Percentage of metropolitan area median. Metropolitan area median is the median family income of the metropolitan area in which the property related to the loan is located.

Source: Federal Financial Institutions Examination Council.

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