U.S.A. Mortgage Banking: Changes In The Landscape

1
U.S.A. Mortgage Banking Changes In The Landscape
World Bank Housing Finance in Emerging Markets
Conference March 15, 2006 Washington DC

• Doug Duncan, Senior Vice President Chief
  Economist
• Mortgage Bankers Association

2
Ownership structures for mortgage banking
companies

• Privately held
• Public stock ownership
• Depository institution
• Diversified financial holding company subsidiary
• Diversified nonfinancial holding company
  subsidiary
• Other

3
The mortgage banking process includes
4
The secondary mortgage market process
5
Risks present in U.S. mortgage market
v
 
6
Current trends product types

• Structural change refinancing
• Structural change adjustable rate mortgages
• Structural change nonprime
• Cyclical factors continued existence but less
  dramatic
• Demographic factors second homes and reverse
  mortgages

7
Annual mortgage production
Billions of Dollars
forecast
Source Mortgage Bankers Association and
Department of Housing and Urban Development.
8
Originations by loan type
Source MBAs First Half of 2005 Mortgage
Originations Survey.
9
Current account balance
Source Bureau of Economic Analysis.
10
Foreign holdings of long term securities
Source U.S. Department of Treasury.
11
Implications of product type trends

• Permanently higher prepayment rates
• Permanently higher adjustable component
• Permanently broader access to higher risk
  borrowers
• Product innovation assisted by technology based
  financial innovation will continue

12
Current trends - lender types

• Vertical integration of investment bankers
• Small mortgage bankers become GSE franchisees
• Niche product or market standalone companies
• Aggregators continue to grow share

13
Single family production by channel
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Summary of changes in market share
Source IMF
15
RMBS Issuance by quarter
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Implications of lender type trends

• Barbell shaped size distribution but with a
  fatter handle
• Capital is key to size because of risks
• Fulfillment advantage recedes
• Few standalone full service entities
• Many institutions competing then keeping profit
  margins competitive with benefits to consumers

17
Current trends nonlender food chain

• Marketing specialization/consumer segmentation
• Process re-engineering
• Changing business environment/model for
• Title companies
• Warehouse lenders
• Private mortgage insurance companies
• Technology vendors
• Security of transaction flows becoming critical
• Risk-sharing permutations continue through
  financial re-engineering
• Multiplicity of products generates multiplicity
  of investors

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Implications of nonlender food chain trends

• Cost reduction/efficiency improvement is
  paramount
• Diversification or business model shifts
• Emergence of industry utilities
• Broader investor base remains
• Sustainability depends on capital and flexibility

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Conclusion

• A dynamic but temporarily slowing market
• A dynamic food chain
• The consumer is king and products fit the royal
  lifecycle
• Profit maximization equals cost minimization

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Contact information/resources
Doug Duncan dduncan_at_mortgagebankers.org 1919
Pennsylvania Ave - Washington, DC
20006 202-557-2825

• MBA homepage www.mortgagebankers.org
• Research and Forecasts http//www.mortgagebankers
  .org/ResearchandForecasts/EconomicOutlookandForeca
  sts
• Research Data
• http//www.mortgagebankers.org/ResearchandForecas
  ts/ProductsandSurveysmarketdata/

MBA Newslink http//www.mortgagebankers.org/Newsa
ndMedia/MBANewsLink Home Loan Learning Center
http//www.homeloanlearningcenter.com/default.html
RIHA http//www.housingamerica.org/sitemap.html