public policy and the housing recovery - brookings...jun 28, 2013 · mortgage-related policies had...
TRANSCRIPT
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THE PAUL MILSTEIN CENTER FOR REAL ESTATE
Public Policy and the Housing Recovery
By Professor Chris Mayer
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Today’s outline
• Comments on Dynan, Gayer, & Plotkin • What other policies did the government pursue to
stabilize housing? • Modifications for delinquent borrowers • Provide support for GSEs/FHA to provide mortgage credit
– How successful was government support of mortgage credit?
– Takeaways for the future
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DGP: Very Nice Work
• Comprehensive summary of various federal and state homebuyer assistance programs
• Variety of different estimation strategies • Conclusion: small positive, but limited effect on
demand and prices • Results make intuitive sense and are consistent with
the findings on many other government programs to help housing
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05
10Ra
te
1960q1 1970q1 1980q1 1990q1 2000q1 2010q1DATE
Ownership RentalCurrent as of Quarter 1, 2013Source: US CensusUS Residential Vacancy Rates
Vacancy rate for housing is falling; Many vacant units in depressed places
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Mortgage-related policies had limited effectiveness
• HAMP (Home Affordable Mortgage Program) was a victim of its own claims & bureaucracy – Targeted 3 to 4 million modifications – So far: 1.1 million permanent modifications (2.0
million temporary mods), but saved many foreclosures (Agarwal, et. al., 2013)
– Some private lenders opted out; the latest GSE programs apply to all delinquent borrowers and do not require new paperwork
– Moral hazard was much less of a problem than feared (Mayer, Morrison, & Piskorski, 2012)
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Mortgage-related policies had limited effectiveness
• Government support for mortgages helped, but only for the best borrowers – For most of the last 5 years, the government has
financed more than 9 in 10 mortgages (Fannie, Freddie, and FHA)
– HARP refinancings were almost exclusively pursued by high quality borrowers until mid-2012
– Refinancings never reached levels set in previous interest rate declines
– Purchase mortgages were only available for the very best borrowers (760 FICO, 28% downpayment)
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Private debt capital has disappeared; Little issuance of private MBS
020
040
060
080
0Bi
llions
of D
olla
rs
1996 1998 2000 2002 2004 2006 2008 2010 2012Year
Gross Non−Agency MBS Issuance by Year (Includes CMBS)Current as of April 2013, annualizedSource: SIFMA
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© Equifax Confidential and Proprietary
US First Mortgage
First Mortgage Portfolio contraction is driven by Foreclosures, Deleveraging (payoffs & pay downs) and lower Home Buyer Demand.
US First Mortgage Portfolio
70
#LOANS
$BALANCES
$7.0
$7.5
$8.0
$8.5
$9.0
$9.5
48
49
50
51
52
53
54
55
562
00
71
0
20
07
12
20
08
02
20
08
04
20
08
06
20
08
08
20
08
10
20
08
12
20
09
02
20
09
04
20
09
06
20
09
08
20
09
10
20
09
12
20
10
02
20
10
04
20
10
06
20
10
08
20
10
10
20
10
12
20
11
02
20
11
04
20
11
06
20
11
08
20
11
10
20
11
12
20
12
02
20
12
04
20
12
06
20
12
08
20
12
10
$Trillions#MillionsEquifax
First Mortgage Portfolio Loans & Balances
Number of first mortgages drops from 55 million to 49 million
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Home purchase mortgages are at levels seen in mid 1990s
Source: Mortgage Bankers Association
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Even refinancing activity is well below previous peaks
Source: Mortgage Bankers Association
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Origination Credit Scores are at unprecedented highs
Source: Lender Processing Services
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New lending has returned for Autos, CC’s
© Equifax Confidential and Proprietary
$75.5
$52.4
$41.2$45.2 $45.0
$46.6
$59.9
$0
$10
$20
$30
$40
$50
$60
$70
$80
2006 2007 2008 2009 2010 2011 2012
$Billions EquifaxStudent Loan Origination Loan Amount Year-to-Date
$172.4
$151.7$133.3
$82.3
$109.3
$128.4$146.7
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
2006 2007 2008 2009 2010 2011 2012
$BillionsEquifax
Auto Finance Origination Loan Amount Year-To-Date
$125.1 $127.7 $121.8$106.9 $107.5
$120.0$136.3
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
2006 2007 2008 2009 2010 2011 2012
$Billions EquifaxAuto Bank Origination Loan Amount Year-To-Date
US Credit Orignations
6 © Equifax Confidential and Proprietary
$75.5
$52.4
$41.2$45.2 $45.0
$46.6
$59.9
$0
$10
$20
$30
$40
$50
$60
$70
$80
2006 2007 2008 2009 2010 2011 2012
$Billions EquifaxStudent Loan Origination Loan Amount Year-to-Date
$172.4
$151.7$133.3
$82.3
$109.3
$128.4$146.7
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
2006 2007 2008 2009 2010 2011 2012
$BillionsEquifax
Auto Finance Origination Loan Amount Year-To-Date
$125.1 $127.7 $121.8$106.9 $107.5
$120.0$136.3
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
2006 2007 2008 2009 2010 2011 2012
$Billions EquifaxAuto Bank Origination Loan Amount Year-To-Date
US Credit Orignations
6
© Equifax Confidential and Proprietary
$195.9 $202.0 $196.8
$93.8$77.7
$97.2$117.9
$0
$50
$100
$150
$200
$250
$300
2006 2007 2008 2009 2010 2011 2012
$Billions EquifaxBankcard Origination Credit Limit Year-To-Date
$50.7
$61.0$56.0
$43.5$34.9 $36.6
$41.8
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
2006 2007 2008 2009 2010 2011 2012
$BillionsEquifax
Retail Card Origination Credit Limit Year-To-Date$83.3 $85.6
$72.8
$40.3$36.9
$38.1 $40.4
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
2006 2007 2008 2009 2010 2011 2012
$BillionsEquifax
Consumer Finance Origination Credit Limit Year-To-Date
$239.4
$215.5
$133.7
$59.1 $46.8 $47.1 $51.7
$0
$50
$100
$150
$200
$250
$300
2006 2007 2008 2009 2010 2011 2012
$BillionsEquifax
Home Equity Origination Credit Line Year-To-Date
US Credit Originations
5
© Equifax Confidential and Proprietary
$195.9 $202.0 $196.8
$93.8$77.7
$97.2$117.9
$0
$50
$100
$150
$200
$250
$300
2006 2007 2008 2009 2010 2011 2012
$Billions EquifaxBankcard Origination Credit Limit Year-To-Date
$50.7
$61.0$56.0
$43.5$34.9 $36.6
$41.8
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
2006 2007 2008 2009 2010 2011 2012
$BillionsEquifax
Retail Card Origination Credit Limit Year-To-Date$83.3 $85.6
$72.8
$40.3$36.9
$38.1 $40.4
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
2006 2007 2008 2009 2010 2011 2012
$BillionsEquifax
Consumer Finance Origination Credit Limit Year-To-Date
$239.4
$215.5
$133.7
$59.1 $46.8 $47.1 $51.7
$0
$50
$100
$150
$200
$250
$300
2006 2007 2008 2009 2010 2011 2012
$BillionsEquifax
Home Equity Origination Credit Line Year-To-Date
US Credit Originations
5
New Auto Finance
New Home Equity New Bankcard Credit
New Bank Auto Loans
Source: Equifax Credit Trends
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© Equifax Confidential and Proprietary
US Bankcard
US Bankcard Originations Sub Prime Card Lenders have opened
underwriting to Sub Prime,
rebounding from the 2009-2010
pullback. Originations increases
have recently slowed as compared
to last year’s originations.
Sub Prime Card is defined by
Origination Risk Scores < 660.
16
YEAR ANNUAL %YOY YEAR TO DATE %YOY CURRENT MO %YOY
2006 27.5 - - - - - 17.2 - - - - - 2.4 - - - - -
2007 29.1 5.8% 19.8 15.1% 2.5 5.1%
2008 18.4 -36.6% 13.4 -32.1% 1.5 -38.9%
2009 7.5 -59.2% 4.8 -64.0% 0.5 -64.7%
2010 8.5 12.4% 4.8 0.2% 0.8 41.9%
2011 12.0 41.4% 7.6 56.4% 1.1 46.0%
2012 - - - - - - - - - - 7.8 2.9% 1.1 -0.3%
NUMBER OF SUB PRIME BANKCARDS (MILLIONS)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
J06 J07 J08 J09 J10 J11 J12
#MillionsEquifax
Number of Bankcard Originations: Sub Prime
Subprime Bankcard (and Auto) lending has returned (FICO
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Good news: Household formation is below trend…but will catch up
Thousands
Source: Census Bureau
Trendline: March 2001 to December 2007
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Conclusion for housing policy
• Policy has not stabilized US housing nearly as much as it could have
• Future government actions should focus on re-establish reasonable lending standards and ground rules
• Need private capital, but in a sustainable way with countercyclical credit support
• Rental market for single-family homes is growing, but is not a long-run solution