Mortgage Growth Indicators Are Negative
New York, NY (May 2, 2011) – Institutional investors continue to be pessimistic about RMBS growth prospects based upon a variety of negative indicators for the mortgage industry. Speaking at Mortgage Bankers Association’s National Secondary Market Conference 2011 today, Digital Risk President Alex Santos presented his analysis of investors’ near term outlook.
Santos pointed out that mortgage originations will continue their 3 year slide from a high of more than $2 trillion in 2009 to less than $1 trillion in 2012. Leading the 50% decrease in originations is the drop off in refinances. PIMCO and Goldman Sachs project unemployment to remain “high” through 2015; for the last 20 years purchase originations have never exceeded $600 billion when unemployment is above 6%.
Other factors contributing to the gloomy outlook include expected increases in rates, the uncertainty of housing values reaching bottom, and the expiration of tax incentives.
Santos added that anticipating the role of Freddie Mac and Fannie Mae is the most problematic. Currently, the 2 GSEs are backing more than 90% of all residential mortgages but the U.S. House Financial Services Committee already has 8 bills under consideration to curtail the size and authority of the GSEs. If the GSE role is limited, the private market may not yet have the confidence to securitize mortgages. Until there is clarity in the direction of unemployment and interest rates plus resolution of the role of the GSEs, Santos expects institutional investors to sit on the sidelines.
