The U.S. Mortgage Market: Government Support and Uncertainty
February 9, 2010
In 2009, we experienced an unprecedented level of government intervention in the mortgage market; and it is not over yet. What happens when it is over? The expected end of the new home buyer credit in 2009 no doubt greatly contributed to the 17% decline in home sales (Source: Bloomberg News, U.S. Economy: Existing Home Sales Decline More Than Forecast, January 25, 2010). Now that this credit has been extended to early summer, can we expect sales to return? What about the 75% of mortgages that FNMA and FHLMC financed in 2009? What about the $1.1 trillion MBS purchased by the Fed in 2009, a program that ends in March? If this government support for the mortgage market were to end, what else could happen to the mortgage market beyond an increase in mortgage rates?
If you rely heavily on mortgage volumes, we recommend you test drive the potential impact to your business model of an end to government support of the housing market. Questions to consider include:
- What could happen to mortgage rates?
- How might loan volumes change?
- What could be the impact to a strategy of originate and sell?
- What could happen to non-interest income?
Investing time to run through a test drive can help management better respond should this scenario unfold.