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)







Total mortgages$7,422.6$8,244.4$9,234.4$10,472.4$11,942.2
Home5,571.36,244.27,024.18,016.29,149.0
Multifamily residential447.8486.7557.3612.2674.5
Commercial1,285.61,388.11,519.61,702.11,967.9
Farm117.8125.5133.5141.9150.9

Source: Board of Governors of the Federal Reserve System.

HOME MORTGAGES BY HOLDER, 2001-2005 (1)

($ billions, end of year)







Total assets$5,571.3$6,244.2$7,024.1$8,016.2$9,149.0
Household sector94.9103.6113.1123.5134.8
Nonfinancial corporate business23.024.926.127.328.5
Nonfarm noncorporate business9.99.69.611.213.1
State and local governments66.463.767.771.173.9
Federal government17.116.215.314.814.4
Commercial banking1,023.91,222.21,347.01,568.01,776.5
Savings institutions620.4631.1702.8874.5954.6
Credit unions141.3159.4182.6213.2245.6
Life insurance companies4.94.74.45.05.2
Private pension funds4.62.81.71.41.4
State and local govt retirement funds6.96.86.36.87.1
Government-sponsored enterprises225.6271.1363.3362.9354.1
Federally related mortgage pools2,748.53,063.73,366.93,416.53,546.8
ABS issuers433.4487.5605.41,004.41,591.7
Finance companies120.1135.0152.2190.1232.5
Mortgage companies (2)21.821.821.821.821.8
REITs8.720.137.8103.7147.1
Home equity loans included above (3)514.0580.3681.7884.01,048.7
     Commercial banking258.6303.3366.0483.6549.1
     Savings institutions77.978.595.6121.2151.6
     Credit unions44.948.151.864.076.3
     ABS issuers12.515.416.125.139.1
     Finance companies120.1135.0152.2190.1232.5

(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

($ billions)





2001$1,90042%12%
20022,6964517
20033,6295219
20042,7763534
2005 (2)2,7473431

(1) ARM share is percent of total volume of conventional purchase loans.
(2) Projected by Freddie Mac.

Source: HUD Survey of Mortgage Lending Activity; Mortgage Bankers Association; Federal Housing Finance Board; Freddie Mac.

  • 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 mortgage44,652,000
          Home equity lump sum mortgage4,385,000
          Home equity line of credit10,044,000
     Line of credit not reported, no regular or lump sum1,694,000
Refinancers 
Units with a refinanced primary mortgage17,685,000
     Primary reason: to receive cash2,375,000

(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

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.


INTEREST-ONLY MORTGAGES

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)

($ billions)



(1) Represents homeowners’ cash withdrawals from home mortgage refinance transactions. Includes prime conventional loans only and are net of retirement of outstanding second mortgages.
(2) Estimated.

Source: Freddie Mac.


MORTGAGE DELINQUENCY AND FORECLOSURE RATES, 1980-2005

(Percent, annual average)


 

Delinquency rates

Foreclosure rates









19805.0%3.1%5.3%6.5%0.3%0.1%0.4%0.5%
19855.84.06.67.40.80.50.91.0
19904.73.06.46.70.90.61.31.4
19954.32.86.57.60.90.61.31.4
19964.32.86.78.01.00.71.61.6
19974.32.86.98.11.10.71.82.0
19984.43.07.18.51.20.71.82.2
19994.22.86.88.61.20.81.82.2
20004.42.96.99.11.10.81.41.8
20015.13.67.710.81.31.11.21.9
20025.13.67.911.51.51.21.52.5
20034.73.47.912.21.31.11.62.8
20044.5NA7.312.21.2NA1.52.7
20054.4NA7.012.51.0NA1.22.4

(1) Veterans Affairs.
(2) Federal Housing Administration.

NA=Data not available.

Source: Mortgage Bankers Association of America.

GOVERNMENT-SPONSORED ENTERPRISES

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

($ millions)





Business balances and growth   
Gross mortgage portfolio, end balance$904,555$727,545-19.6%
Outstanding MBS (1), end balance1,402,7611,598,07913.9
Book of business, end balance2,307,3162,325,6240.8
Business volumes   
Lender-originated issues527,146481,260-8.7
Fannie Mae MBS (1) purchases64,60415,628-75.8
MBS issues acquired by others462,542465,6320.7
Business volume725,189612,272-15.6
Mortgage portfolio commitments, purchases and sales   
Net retained commitments256,14435,469-86.2
Purchases262,647146,640-44.2
Mortgage portfolio sales16,449113,295588.8
Liquidations   
Mortgage portfolio liquidations240,201211,416-12.0
Outstanding MBS (1) liquidation (2)374,688368,067-1.8

(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 year282,303288,5326,229
Senior debt, net due after one year 443,772454,62710,855
Subordinated debt, net due after one year 5,6225,63311
Miscellaneous liabilities (1)30,66229,290-1,372
Minority interests in consolidated subsidiaries 1,509949-560
Stockholders' equity 31,41627,191-4,225
(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 investments23,28724,16428,42725,02331,524
Farm Credit Insurance Fund assets2,0332,1642,0621,9942,181
     Total assets116,844124,850139,886129,970150,224
Systemwide debt securities94,24299,107112,719104,360122,256
     Total capital18,92321,38922,77422,19523,535
Net interest income2,9192,9943,246 $1,575 $1,730
(Provision for loan losses) loan loss reversal-991,2081-714
Net income1,8252,9932,0961,0171,161
Capital as percentage of assets16.2%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 securities1,007,954830,4091,064,7821,056,1431,621,941
     Farmer Mac guaranteed securities1,690,3761,608,5071,508,1341,376,8471,330,976
     Loans, net198,003963,461983,624882,874799,516
     Total assets3,415,8564,222,9154,299,6503,846,8174,340,619
     Notes payable     
          Due within one year2,233,2672,895,7462,799,3842,620,1722,587,704
          Due after one year968,463985,3181,136,110862,2011,403,598
     Total liabilities3,281,4194,039,3444,086,3963,609,9654,092,487
     Stockholders’ equity134,437183,571213,254236,852248,132
     Selected financial ratios     
          Return on average assets0.50%0.56%0.59%0.69%0.67%
          Return on average common equity12.1915.0015.3214.8513.14
          Average equity to assets4.064.164.665.535.92
Source: Federal Agricultural Mortgage Corporation.
TITLE INSURANCE

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


($000)







1996$5,540,316 NA2001$9,853,99126.1%
19976,028,5288.8%200213,004,54732.0
19988,204,51436.1200317,036,59131.0
19998,729,0876.4200416,789,620-1.4
20007,817,051-10.4200518,288,7468.9
NA= Data not available.

Source: American Land Title Association.