MORTGAGE FINANCE AND HOUSING
||Mortgage financing has become an increasingly important element in the economy, involving a wide range of financial institutions from commercial banks, thrifts and credit unions to finance companies, life insurers and government-sponsored enterprises like Fannie Mae. In 2005, home mortgage debt outstanding amounted to $9.1 trillion.|
Demographic factors such as the size of various age groups within the population and changes in disposable income, interest rates and the desirability of other investment options influence the residential mortgage market. The commercial market has expanded in response to business growth.
Overall, the mortgage market grew 14.0 percent in 2005 from the previous year. In the home mortgage sector, the combined mortgage holdings of commercial banks and savings institutions rose 11.8 percent, the holdings of credit unions rose 15.2 percent, and those of finance companies rose 22.3 percent.
The term mortgage origination refers to the original transaction, the point at which the homeowner purchases the mortgage, in person or online, from a financial services company such as a bank.
Mortgages may be sold and packaged as securities, which frees up funds for the mortgage originator to make additional mortgages available. Mortgage-backed securities are sold by asset-backed securities (ABS) issuers. The sale transfers the risk of default from the originator to the ABS buyer.
The bank that originates the mortgage does not always “service” the mortgage itself. It may sell the servicing of the mortgage, which includes collecting and processing monthly payments, to another company. The servicing business of many of the leading mortgage originators is much larger than their origination business.
||TOTAL MORTGAGES OUTSTANDING, 2001-2005|
($ billions, end of year)
Source: Board of Governors of the Federal Reserve System.
||HOME MORTGAGES BY HOLDER, 2001-2005 (1)|
($ billions, end of year)
|Nonfinancial corporate business||23.0||24.9||26.1||27.3||28.5|
|Nonfarm noncorporate business||9.9||9.6||9.6||11.2||13.1|
|State and local governments||66.4||63.7||67.7||71.1||73.9|
|Life insurance companies||4.9||4.7||4.4||5.0||5.2|
|Private pension funds||4.6||2.8||1.7||1.4||1.4|
|State and local govt retirement funds||6.9||6.8||6.3||6.8||7.1|
|Federally related mortgage pools||2,748.5||3,063.7||3,366.9||3,416.5||3,546.8|
|Mortgage companies (2)||21.8||21.8||21.8||21.8||21.8|
|Home equity loans included above (3)||514.0||580.3||681.7||884.0||1,048.7|
| Commercial banking||258.6||303.3||366.0||483.6||549.1|
| Savings institutions||77.9||78.5||95.6||121.2||151.6|
| Credit unions||44.9||48.1||51.8||64.0||76.3|
| ABS issuers||12.5||15.4||16.1||25.1||39.1|
| Finance companies||120.1||135.0||152.2||190.1||232.5|
(1) Mortgages on 1 to 4 family properties.
(2) Not updated by the Federal Reserve System since 1997.
(3) Loans made under home equity lines of credit and home equity loans secured by junior liens. Excludes home equity loans held by mortgage companies and individuals.
Source: Board of Governors of the Federal Reserve System.
||ONE TO FOUR FAMILY HOME MORTGAGE ORIGINATIONS, 2001-2005|
- Adjustable rate mortgages, loans in which the interest rate is adjusted periodically according to a pre-selected index, accounted for 31 percent of mortgage originations in 2005, up from 12 percent in 2001.
||MORTGAGE STATUS AND REFINANCING ACTIVITY OF HOMEOWNERS, 2005|
|Homeowners with mortgages|| |
|Mortgages currently on property|| |
| None, owned free and clear (1)||24,776,000|
| Regular and/or home equity mortgage (2)||48,394,000|
| Regular mortgage||44,652,000|
| Home equity lump sum mortgage||4,385,000|
| Home equity line of credit||10,044,000|
| Line of credit not reported, no regular or lump sum||1,694,000|
|Units with a refinanced primary mortgage||17,685,000|
| Primary reason: to receive cash||2,375,000|
(1) Free of regular mortgages, which include all mortgages not classified as home equity or reverse.
(2) Figures may not add to total because more than one category may apply to a unit.
Note: Latest data available. Based on surveys conducted every two years.
Source: U.S. Department of Commerce, U.S. Census Bureau; U.S. Department of Housing and Urban Development, Office of Policy Development and Research.
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. In 2005, HECMs account led for about 90 percent of all reverse mortgages.
||REVERSE MORTGAGES: ANNUAL ORIGINATION VOLUME FOR HOME EQUITY CONVERSION MORTGAGES (HECMs), FISCAL YEAR 2001-2005 (1)|
(1) HECMs are federally insured reverse mortgage products.
(2) The U.S. Department of Housing and Urban Development ran out of insurance authority and could not insure additional HECMs during the last two weeks of September 2003 (the last month in FY 2003).
Source: National Reverse Mortgage Lenders Association.
In interest-only mortgage arrangements, the borrower pays only the interest on the capital for a set term. After the end of that term, usually five to seven years, the borrower either refinances, pays the balance in a lump sum or starts paying off the principal, in which case the monthly payments rise. The vast majority of interest-only mortgages are adjustable rate mortgages (ARMs), according to First American LoanPerformance. ARMs, in which the interest rates fluctuate with changes in a market index such as the Treasury Bill rate, accounted for 31 percent of home mortgages in 2005, according to the Federal Home Loan Board. Another mortgage innovation, the payment option loan, lets the borrower make minimum payments that are lower than the interest due on the loan and roll the balance into the amount owed. Payment option loans accounted for nearly 10 percent of mortgage originations in 2005.
||CASH OUT HOME MORTGAGE REFINANCING, 1996-2005 (1)|
(1) Represents homeowners’ cash withdrawals from home mortgage refinance transactions. Includes prime conventional loans only and are net of retirement of outstanding second mortgages.
Source: Freddie Mac.
||MORTGAGE DELINQUENCY AND FORECLOSURE RATES, 1980-2005|
(Percent, annual average)
Government-sponsored enterprises (GSEs) are corporations created by Congress to assist groups of borrowers such as homeowners, mortgage lenders and farmers gain access to capital markets. Three GSEs — the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal Home Loan Bank (FHLB) system — stand behind more than $4 trillion worth of mortgages, or more than three-quarters of the single-family mortgages in the United States, according to a Federal Reserve Report.
Fannie Mae, established in 1938 to increase the availability and affordability of home mortgages, purchases and sells conventional residential mortgages as well as those insured by the Federal Housing Administration. A similar organization, Freddie Mac, chartered in 1970 to increase the supply of funds that mortgage lenders make available to homebuyers, buys mortgages from banks and other lenders, packages them into securities and sells them to investors. The FHLB system, established in 1932 to provide a source of funds to community financial institutions, provides loans and various services to its members, which include savings and loan associations, savings banks and insurance companies. The Farm Credit System was established by Congress in 1916 to provide American agriculture with a source of dependable credit at competitive rates of interest. A related entity, the Federal Agricultural Mortgage Corporation (Farmer Mac), was established to attract new capital for the financing of agricultural real estate and to provide liquidity to agricultural lenders.
||FANNIE MAE FINANCIAL HIGHLIGHTS, 2004-2005|
|Business balances and growth|| || || |
|Gross mortgage portfolio, end balance||$904,555||$727,545||-19.6%|
|Outstanding MBS (1), end balance||1,402,761||1,598,079||13.9|
|Book of business, end balance||2,307,316||2,325,624||0.8|
|Business volumes|| || || |
|Fannie Mae MBS (1) purchases||64,604||15,628||-75.8|
|MBS issues acquired by others||462,542||465,632||0.7|
|Mortgage portfolio commitments, purchases and sales|| || || |
|Net retained commitments||256,144||35,469||-86.2|
|Mortgage portfolio sales||16,449||113,295||588.8|
|Liquidations|| || || |
|Mortgage portfolio liquidations||240,201||211,416||-12.0|
|Outstanding MBS (1) liquidation (2)||374,688||368,067||-1.8|
(1) Mortgage-backed securities.
2) Unpaid principal balance of MBS guaranteed by Fannie Mae and held by investors other than Fannie Mae.
Source: Federal National Mortgage Association.
||FREDDIE MAC SELECTED BALANCE SHEETS RESULTS, 2004-2005|
($ millions, end of year)
|Total assets||$795,284 ||$806,222 ||$10,938 |
|Senior debt, net due within one year||282,303||288,532||6,229 |
|Senior debt, net due after one year ||443,772||454,627||10,855 |
|Subordinated debt, net due after one year ||5,622||5,633||11 |
|Miscellaneous liabilities (1)||30,662||29,290||-1,372|
|Minority interests in consolidated subsidiaries ||1,509||949||-560|
|Stockholders' equity ||31,416||27,191||-4,225|
|(1) Includes (a) Due to Participation Certificate investors, (b) Accrued interest payable, (c) Guarantee obligation, (d) Derivative liabilities, at fair value, (e) Reserve for guarantee losses on Participation Certificates and (f) Other liabilities, as presented on our consolidated balance sheets.
Source: Federal Home Loan Mortgage Corporation.
||FARM CREDIT SYSTEM SELECTED FINANCIAL INFORMATION, 2003-2006|
($ millions, end of period)
|Gross loans||$92,790 ||$96,367 ||$106,272 ||$100,648 ||$112,765 |
|Cash, federal funds and investments||23,287||24,164||28,427||25,023||31,524|
|Farm Credit Insurance Fund assets||2,033||2,164||2,062||1,994||2,181|
| Total assets||116,844||124,850||139,886||129,970||150,224|
|Systemwide debt securities||94,242||99,107||112,719||104,360||122,256|
| Total capital||18,923||21,389||22,774||22,195||23,535|
|Net interest income||2,919||2,994||3,246 ||$1,575 ||$1,730 |
|(Provision for loan losses) loan loss reversal||-99||1,208||1||-7||14|
|Capital as percentage of assets||16.2%||17.1%||17.1%||17.1%||15.7%|
Source: Federal Farm Credit Banks Funding Corporation.
||FARMER MAC SELECTED FINANCIAL DATA, 2001-2005|
($000, end of year)
| Cash and cash equivalents||$437,831||$723,800||$623,674||$430,504||$458,852|
| Investment securities||1,007,954||830,409||1,064,782||1,056,143||1,621,941|
| Farmer Mac guaranteed securities||1,690,376||1,608,507||1,508,134||1,376,847||1,330,976|
| Loans, net||198,003||963,461||983,624||882,874||799,516|
| Total assets||3,415,856||4,222,915||4,299,650||3,846,817||4,340,619|
| Notes payable|| || || || || |
| Due within one year||2,233,267||2,895,746||2,799,384||2,620,172||2,587,704|
| Due after one year||968,463||985,318||1,136,110||862,201||1,403,598|
| Total liabilities||3,281,419||4,039,344||4,086,396||3,609,965||4,092,487|
| Stockholders’ equity||134,437||183,571||213,254||236,852||248,132|
| Selected financial ratios|| || || || || |
| Return on average assets||0.50%||0.56%||0.59%||0.69%||0.67%|
| Return on average common equity||12.19||15.00||15.32||14.85||13.14|
| Average equity to assets||4.06||4.16||4.66||5.53||5.92|
|Source: Federal Agricultural Mortgage Corporation. |
Title insurance protects the owner of property or the holder of a mortgage against loss in the event of a property ownership dispute.
||TITLE INSURANCE, 1996-2005|
|NA= Data not available.|
Source: American Land Title Association.