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Posts Tagged ‘FDIC’

Mortgage Patterns: Beating Values, Going Conventional, Government Gets Busy

July 17, 2007 | 2:20 pm | |

There has been a lot of change and turmoil in the mortgage arena as of late: Subprime problems, rising mortgage rates, credit tightening and so on are the things that many of us are acutely aware of. Never in my experience has so much discussion been placed on the topic of mortgages. The orientation about a formerly overheated housing market has shifted front and center to mortgages. As a result, the topic is being analyzed, dissected and over-interpreted just the way the housing market was.

Here are a few mortgage topicss and their interplay with a weak housing market. Additional topic ideas are welcome.

According to David Berson of Fannie Mae, there is growing trend toward government backed mortgages like FHA and VA loans.

Borrowers with blemished credit histories (who previously might have taken out conventional subprime loans) are likely now turning to FHA loans to purchase a home or to refinance their existing mortgages.

While the idea that the US government is gaining more exposure to residential mortgages after being asleep at the switch as the subprime mortgage mess developed is offensive to many, its not like the government is lending the money directly (unless I am missing something, so please enlighten me if I am). Here’s some message board feedback addressing the irony (via

Of course, having lived through the S&L crisis filled with acronyms like FDIC and RTC, I know that government has a weak track record of oversight when it comes to mortgages.

In addition, conventional mortgages are getting “fixed”…

The market share of adjustable rate mortgages have dropped considerably as mortgage rates trend upward (albeit modestly). According to the Mortgage Banker’s Association, the market share of ARM’s to Fixed Rate mortgages have dropped from 31% to 20% over the past 18 months. The drop is attributed to the decline in the number of investors and weakening sales prices. Regulatory pressures will also keep the number of new ARM mortgage products down, like no-doc (liar) loans and negative-ams (negative amortization). This will filter out a large swath of potential buyers including a large swath of first time buyers making the shift from rental to owner occupancy.

A self-serving (for me, since I am a co-owner of an appraisal firm) strategy that comes into play with values slipping in many markets is playing with the timing of the appraisal. In Bob Tedeschi’s always interesting (despite the column name) Mortgages column, his recent article Could Be Time for an Appraisal, addresses the issue of slipping markets and timing the appraisal.

“If you’re not selling, you’re typically fine,” said Bob Moulton, the president of the Americana Mortgage Group, a brokerage in Manhasset, N.Y.

But, Mr. Moulton said, there are exceptions. “As house values drop,” he said, “people can have a tougher time refinancing, because the house won’t appraise for the amount they might need.”

I am a little fuzzy (and squeamish) on the comment made about “not selling” but otherwise, this concept banks (sorry) on the idea that in a declining market, get an appraisal early in the application process. In other words, it may be an advantage to the applicant (you) to request the appraisal earlier from your mortgage broker. If values are dropping, the mortgage will be based on a higher value than if the appraisal was done just before closing. hmmmm…

This seems logical (but as a result, off-loads more risk to lenders), but I am not aware of any banks that my firm deals with that will generally honor an appraisal even if it is three to four months old. Even during the height of the market, I wasn’t familiar with appraisal valuation dates exceeding 90 days.

The appraisal is a perishable product, a snap shot of the market. Lenders are well aware of generally weaker market conditions than seen in prior years. In other words, when a market is deteriorating, one of the things a lender looks more closely at is the valuation date of the appraisal (and rumor has it, is actually reading the reports now). In changing markets, an underwriter’s comfort level drops significantly as the timeline from appraisal (valuation) date to closing date expands.

Possible summaries

* Recap (safe, generic version): In the cart before the horse analysis, the challenges facing the mortgage market will exaggerate the problems facing the housing market. Tightening credit and an elevated wariness within lending institutions toward home mortgages will temper any form of housing recover for the next few years.

* Recap (cynical, sarcastic, “late-night I’m tired” version): Weaker housing markets (price and volume) have caused more emphasis to be placed on (clearing throat sound) an actual understanding of the market values of collateral being used, with less emphasis on questionable lending practices and less volatile mortgage products. While there is certainly nothing wrong with being creative in lending, the backlash of tightening credit is in direct response to lax lending practices by the very same industry to begin with.

I wonder if any lessons have been learned in this housing cycle as it pertains to mortgages. When taking the long view, somehow I doubt it.

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52-Card Pickup, Or How Steroids Impacted The Housing Market, Sort Of

July 10, 2007 | 11:59 pm |

Credit Suisse analysts have come up with a startling number:


That’s 52 followed by 9 zeros and inserting 3 commas (I am fond of commas).

$52,000,000,000 in subprime CDO’s at risk.

The losses are projected to have a ratio of about 80%/20% hedge funds/banks. This is not bigger than the Savings & Loan FDIC bailout amount of $125 billion about 15 years ago whose costs were born by the taxpayers through the massive sell off of assets through the sub-agency Resolution Trust Corporation, lovingly known by appraisers as the RTC. It was nirvana for appraisers, because we got to estimate values for complex foreclosed assets of defunct S&L’s, including hair-brained development deals and oddball asset classes conjured up by people who had no business doing what they did.

Major League Baseball’s All-Star game is going on right now and the Tour de France bicycle race (my favorite, second only to March Madness) began last Saturday. Baseball and professional bicycling have been plagued by scandals including steroids, human growth hormones, blood doping and others. I am big fans of both sports, but they have been tainted for many years with this form of cheating, whether or not the drugs were legal at the time.

Did it make me write off these sports as a fan? No.

Does it taint the records and perceptions of the players and does it place the sports at risk in the long term? Yes, perhaps.

When things are going well, its often easier to look the other way.

These professional athletes may have achieved milestone records, won championships and received big contracts in exchange for perhaps, a shorter life expectancy. Perhaps they suffered from a limiting understanding or an obscured appreciation of their own health risk.

Institutional investors and investment bankers also suffered from a lack of understanding of the real risks and what these subprime mortgages really represented. Like professional sports, there is nothing inherently wrong with subprime lending as long as ethics are adhered to and guidelines or standards are followed. While subprime loan applicants typically have a much higher credit risk, it was the issuers of these loans that were the parties that should have scrutinized by investors. The subprime mortgage market may not have melted down if basic lending standards were applied in the subprime lending process.

Don’t mean to pontificate, but its that lack of an appreciation of risk, and the disconnect with asset values that is something I deal with every day as an appraiser. Plus, its an easy way to speak about what’s on my mind in one post: MLB, The Maillot Jaune and a changing real estate market.

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Housing Gloom Recap Leads To March Madness

March 13, 2007 | 10:33 am | |

Lets recap the potential path for housing and the economy based on news reported in March:

  1. Economy so-so
  2. Investors get risk averse
  3. Subprime defaults increase
  4. Mortgage underwriting guidelines tighten
  5. Weak housing market gets weaker as a result
  6. Housing related jobs decrease
  7. Economy weakens further, skirts with recession
  8. A few years of weak housing conditions remain

To expand on each point…

1. Economy so-so [FDIC – pdf]

Pronounced weakness in the housing sector is being largely offset by continued strength in the corporate sector, commercial construction activity, and exports…Still, some negative trends have emerged for banks. They include a narrowing of net interest margins, particularly among larger institutions; increasing concentrations of traditionally riskier commercial real estate loans; and emerging signs of credit distress in subprime mortgage portfolios. Ultimately, it is local economic conditions that are the most important determinants of credit quality and earnings strength at the majority of banks and thrifts. In this issue of the FDIC Outlook, our regional analysts identify trends that are expected to affect banking in their areas during the remainder of 2007.

2. Investors get risk averse [Bloomberg]
The concern over subprime lending and rising defaults is increasing the flight to safety. That is, investors are buying treasuries. Price goes up, yield goes down. Lower yields on a ten year have limited effect on most mortgage rates because the term is too short but still, it would probably help maintain a low rate environment.

“The biggest risk we can identify is from the spate of foreclosures in the subprime market increasing the inventory of unsold homes and weighing on home prices,” said Amitabh Arora, head of U.S. interest-rate strategy in New York at Lehman Brothers Inc. “We are much more cognizant of that than we used to be.”

3. Subprime defaults rise [MSNBC]

“Just as the case often was back in college, when you have too much liquidity sloshing around for too long, people tend to do some foolish things,” Wachovia senior economist Mark Vitner wrote in a recent research note. “Apparently that includes loaning money to folks with spotty credit histories to purchase homes not only to live in but also to speculate on.”

4. Mortgage underwriting guidelines tighten [WSJ]

Early February, the Federal Reserve reported a sharp increase in the number of banks tightening mortgage-lending standards. On Tuesday, Freddie Mac — whose main business is repackaging mortgages into mortgage-backed securities — said it was tightening standards on purchases of risky, subprime mortgages. On Friday, banking regulators proposed stricter mortgage guidance.

5. Weak housing market gets weaker as a result [LA Times]

That could hurt the housing market by shrinking the pool of eligible buyers. In addition, many homeowners with high-risk loans whose rates will adjust upward in the next year or two won’t be able to refinance into loans with better terms. That could put some into foreclosure.

6. Housing related jobs decrease [MSNBC]

Housing-related job losses once again put a dent in February job growth, which saw an overall gain of 97,000 — down from a gain of 111,000 in January. Employment in housing-related industries fell by 11,000 in February, bringing to 176,000 the total number of jobs lost in the sector since at sector since April 2006, according to figures compiled by

7. Economy weakens further, skirts with recession [Bloomberg]

Alan Greenspan, who jolted investors by predicting a one-in-three chance of a recession this year, isn’t as bearish as the bond market, where the risk of a downturn is even money. The probability the U.S. economy will shrink for two quarters has risen to 50 percent, according to a model created when Greenspan ran the Board of Governors of the Federal Reserve System. The formula is based on differences in yields on Treasuries.

8. A few years of weak housing conditions remain [CNN/Money]

Celia Chen, director of housing economics for Moody’s, says she thinks it will take until 2009 for prices nationally to reach the peaks hit in 2005. Take inflation into account, she said, and a full recovery could take more than 7 years.

I’d have to agree that its not simply a matter of time before the national housing market returns to 2004/2005 conditions. The housing boom was a period where all the stars were aligned and the universe was in sync. The combination of unusually low mortgage rates prompted by 9/11, loose or perhaps non-existent underwriting guidelines for mortgages, expansion of subprime lending, exotic mortgages, a solid non-inflationary economy, rising productivity, risk oblivious investors who had moved out of the stock market after the 2000-2001 period of volatility, shifting demographics that saw more immigration and a get rich quick mindset created the housing boom.

The news isn’t all bad, however. Modest growth in the housing sector would go a long way in keeping housing more affordable. I think Fannie Mae’s record of 69% home ownership reached last year, which has since slipped, is not going to be passed anytime soon.

On the bright side, March Madness is nearly here and my son’s basketball team won our town’s 3rd grade basketball championship.

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Banking On Profits, Not Risks

February 26, 2007 | 12:01 am | |

Weakness in the national housing market hasn’t really hit the banking sector results yet, or so it would appear to be the case. Here are a few thoughts:

Banking Profits/Credit Quality
On Friday the Federal Deposit Insurance Corp (FDIC) announced that banks and thrifts reported record earnings in 2006, the sixth yearly increase in a row. The FDIC is an independent agency of the federal government created to maintain public confidence in the banking system.

However, credit quality of mortgage loans has fallen as evidenced by the increase in mortgages that are more than 90 days delinquent and the increase in charge-offs.

Residential mortgage loans that were noncurrent (90 days or more past due or in nonaccrual status) increased by $3.1 billion (15.6 percent) during the fourth quarter. This increase followed a $974 million (5.2 percent) increase in the third quarter. Net charge-offs of residential mortgage loans totaled $888 million in the fourth quarter, a three-year high.

Exotic Mortgages
Even negative amortization adjustable rate mortgage (NegAm ARM) delinquencies, the universally loathed and blamed mortgage product of all that is bad with mortgage lending these days (excluding subprime) has remained relatively low so far. The risk of their delinquencies may rise as housing prices fall, especially since these products were more popular in markets that saw the largest levels of appreciation. Its a little premature to attribute the lack of significant problems with these types of loan products as a sign that they really weren’t a big problem to begin with.

According to RealtyTrac, foreclosures are clearly on the rise. January 2007 versus 2006 saw an increase of 25%. A scary number but percentages can be a little misleading since the hard numbers are not presented as a percentage of the total mortgages outstanding. According to the Mortgage Bankers Association, the December 2006 total delinquency rate was 4.67%, which is not high by historical standards. The largest portion came from subprime loans. However, delinquency is a broader definition than foreclosure, but for argument’s sake, its getting worse.

Click here for full sized graphic.

Risk Assessment
One of the problems with mortgage underwriting during the housing boom was the lack of understanding of risk. Automation and detachment from the collateral itself allowed lending institutions to marginalize the risk, perhaps by pushing it off onto theoretically unaware secondary market investors.

One of my favorite, go-go 1980’s books was Liars’ Poker by Michael Lewis (along with Barbarians at the Gate: The Fall of RJR Nabisco and Den of Thieves).

One of the stars of Liar’s Poker was Lewis Ranieri who helped invent the mortgage backed securities concept – selling bonds tied to mortgages was part of an excellent James Hagerty piece in the WSJ on Saturday called Mortgage-Bond Pioneer Dislikes What He Sees [WSJ].

Ranieri and his colleagues in the late 1980’s (thoughts of my Liar’s Poker readings included them bragging about having more powerboats than polyester suits and how they ate onion cheeseburgers for breakfast) combined

regular mortgages into giant pools of loans that could be divided up and resold as bonds to pension funds and other institutional investors. These bonds come with a variety of credit ratings and are repackaged in endless permutations to meet investors’ varying appetites for risk.

Ranieri’s current assessment of the problem is that today’s investors don’t understand the risk because the expansion of offerings has changed dramatically in recent years and they don’t have the historical perspective.

The problem, he says, is that in the past few years the business has changed so much that if the U.S. housing market takes another lurch downward, no one will know where all the bodies are buried. “I don’t know how to understand the ripple effects through the system today,”

One of the reasons, has been the meteoric rise in collateralized debt obligations, or CDO’s which are sort of like mutual funds for mortgage securities investors who want to spread their risk. The problem is that he says that buyers of the debt don’t understand the risk like secondary market investors do because they don’t have access to the same level of information.

Take away:
Its ok to work hard for profits, and banks have every right to do that. In fact its their responsibility. However, its also their responsibility to understand the risks that are out there. Mortgage lending played a significant role in the housing boom. I am not confident that the banking industry can remain impervious to the by-product of the aggressive lending we’ve seen in recent years, characterized by the don’t ask, don’t tell mentality. I am surprised that more attention hasn’t been placed on the risks in the mortgage collateral pool (note: faulty valuation of assets).

There hasn’t been enough time for the housing slow down to affect banking’s bottom line yet. We are starting to see signs of weakness in terms of rising foreclosures and noncurrent loans. However, I wonder if there is greater long term risk associated with the lack of understanding of the risks themselves, or simply greater demand for a good polyster suit with cheeseburger grease stains.

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Congress Gets Shakespearean: Housing To Be Normal, Or Not To Be Normal

September 14, 2006 | 12:01 am | |

Congress set out to dig deeper into understanding whether or not we are in a housing bubble [Reuters] and to further understand the state of US mortgages. Late edition hat tip to Lansner.

Democratic Senator Charles Schumer of New York mused: “To paraphrase Shakespeare: Is there a bubble or isn’t there a bubble? That is the question.”

They tapped the following experts:

Richard Brown of the Federal Deposit Insurance Corporation:
The Federal Deposit Insurance Corporation (FDIC) preserves and promotes public confidence in the U.S. financial system by insuring deposits in banks and thrift institutions for at least $100,000; by identifying, monitoring and addressing risks to the deposit insurance funds; and by limiting the effect on the economy and the financial system when a bank or thrift institution fails. Not a whole lot of careful mortgage underwriting going on these days.

Patrick Lawler of the Office of Federal Housing Enterprise Oversight
OFHEO promotes housing and a strong economy by ensuring the safety and soundness of Fannie Mae and Freddie Mac and fostering the vitality of the nation’s housing finance system. They were asleep at the helm during the Fannie Mae accounting scandals.

Dave Seiders of the National Association of Homebuilders
NAHB is a trade association that helps promote the policies that make housing a national priority. This is a trade group so its not providing neutral insight so I would take any opinions they provide very lightly.

Tom Stevens of the National Association of Realtors
The core purpose of the NATIONAL ASSOCIATION OF REALTORS® is to help its members become more profitable and successful. This is a trade group that has been spinning a weakening housing market until about a month ago. I would take any opinions they provide very lightly. Have you noticed that David Lereah, their chief economist, who has polarized public opinion about this, has been largely silent recently? President Tom Stevens has become the spokesman.

So now we have these four individuals testifying about the market: 2 represent government entities that have been largely dormant and 2 represent trade groups that have been the housing markets biggest cheerleaders. I am not sure anything that can be said will be useful to Congress. More of a PR op.

For a summary of comments and prepared statements:
Mr. Bubble Goes To Washington [Lansner]

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Words Not To Say (Or Mean) In Your Property Listing

September 8, 2006 | 7:01 am |

I have often commented on the use of language in the real estate industry and there is much regulation to prevent or discourage discrimination. However, some of the simplest words or phrases, when presented out of context, can be trouble. Real estate brokers and appraisers take classes for licensing which include this topic. Most of my orientation is concerned with the lending side use of language but the listing side seems to be equally suspect.

Not specifically mentioned (as far as I can tell) in Fair Lending regulations but the following words drive me crazy:

  • Prime
  • Exclusive

In a random query of fair housing sources, a few phrases jumped out at me that I see used. Most are used in an innocent context, but its food for thought.

The Federal Deposit Insurance Corporation (FDIC) which provides safety through insurance on your money in the bank has guidelines covering this:

Examples of subjective lending criteria that may lead to possible unlawful discrimination include:

The property should be in a “stable” or “rising” area, should be “well-maintained” and have an “attractive appearance” or “good curb appeal”

The neighborhood should be “desirable”; there should be “homogeneity of residents and structures”; or the neighborhood should reflect “satisfactory pride of ownership”

In Portsmouth Virginia, the city has developed a fair lending guide [pdf]

An excerpt from the section: Avoidance of Words, Phrases, Symbols, or Visual Aids in Advertising which Overtly Convey or Tacitly Convey Discriminatory Preferences or Limitations

Examples that could be used in a discriminatory context should be avoided:

  • restricted
  • exclusive
  • traditional
  • board approved (do we hear “co-op?)

The Miami Valley Fair Housing Center has a Fair Housing Advertising Word and Phrase List to assist local businesses to be in compliance with Ohio and federal fair housing laws.

  • bachelor pad
  • empty nesters

With all the superlatives thrown into the selling process, I would argue for a little more awareness, so the message you think you are conveying, is the message you are conveying, and its legal.


The Rocky Marriage Of Housing And Banking

September 5, 2006 | 10:46 am | |

The economy is cooling in a non-cataclysmic way [FXStreet]. As a result (or as the cause), the housing market has been posting weaker numbers lately [MW] which exposes the vulnerability of one of the strongest business sectors today: Banking.

Why do banks continue to show rosy returns? It has been said that banks will be able to weather the proverbial soft landing. History (selectively) shows this, but why is that not a sound basis for analysis of current conditions?

Banks were able to survive the last downturn in the early 1990s, except smaller local banks. The FDIC said the mid to large sized banks did just fine back then.

This time its different. Exotic and adjustable mortgages are a relatively new market force with little history to rely on. According to Northern Trust, 60% of current bank earnings are based on housing and housing comprises more than 16% of GDP.

In other words, its important. Banks need to reel in their underwriting standards again.

The reduced issuance of mortgage securities [WSJ] will also hurt Wall Street.

Among the reasons: weakening trends in stock and bond underwriting and trading, and even a cutback in risk among hedge funds, leading them to reduce their borrowings through Wall Street brokers. Issuance of mortgage securities, one analyst warns, may wane as the housing bubble deflates.

_But its too soon to tell_
One of the reasons banks looks so good these days as they relate to mortgages is exotic products like option-ARMs. Mortgages are just starting to reset, so the full impact of borrowers unable to refinance their adjustable rate mortgages is not yet apparent. Also, banks can book the full amount of the mortgage payment, even if the rising number of borrowers choose to only make the interest payment. This quirk in bookkeeping rules does not do investors any favors.

Source: Businessweek


House Versus Home

August 28, 2006 | 6:47 am |

The terms house and home seem to be used interchangeably in market stats, but I wonder if thats really appropriate.

House: a building in which people live; residence for human beings, a household. Source

Home: a house, apartment, or other shelter that is the usual residence of a person, family, or household. the place in which one’s domestic affections are centered. Source

Both refer to a residence but the phrase home is more personal. There doesn’t seem to be a real correlation on who uses what pharse. Although the NAR uses home most likely for marketing emphasis, so does the Commerce department when tracking new home sales. Yet Commerce uses the term housing starts.

To me, home implies warmth, personal, a residence and house implies a unit of measure, a thing.

Plus a house is bigger, its got one more letter (wink).


Banking On Home Depot As Long As Commerce And Banking Don’t Mix

June 7, 2006 | 12:02 am |

The National Association of Realtors said it had asked federal regulators to reject Home Depot’s plan to buy EnerBank USA, citing potential competitive harms [Reuters] In a statement on Tuesday, the group said it told the Federal Deposit Insurance Corp. in a letter that the buyout could create potential conflicts of interest, pose risks to the U.S. financial system and discourage competition in financial services.

NAR raised similar objections a while back when Wal-Mart applied to the FDIC to buy their own bank. Essentially NAR claims that the Home Depot bank “EnerBank” will be biased toward contractors who already do business with Home Depot. EnerBank is an existing bank that specializes in kitchen and bath renovations and it therefore seems to be a natural fit for Home Depot. Why would NAR care about this at all?

NAR fought the earlier Wal-mart application because they claim it mixes banking and commerce and places banks in a more speculative position. Banks claim that NAR already has a monopoly on real estate brokerage. Again, why would NAR care about Home Depot?

Its the principle that will end up shooting bankers in the foot.

The Wal-Mart application opposition was unusual because NAR and the banking industry were actually on the same side.

For more than five years, the realtors have tenaciously fought a Washington-style, lobbyist-intensive battle against allowing banks into real-estate brokerage. What was their argument? You guessed it–the need to maintain the separation of banking and commerce. So the banks trying to prevent Wal-Mart from entering their business and the realtors hoping to avoid competition from banks are both citing the same “principle.” This should tell us a lot about what the separation of banking and commerce is really about.

The banking industry is being nailed (sorry) quite astutely by the NAR [AEI].

The results of this shortsighted strategy are easily seen in the banks’ fruitless effort to enter the real-estate brokerage business. For five years, the Fed, under pressure from Congress and the realtors, has been unable to decide whether real-estate brokerage is a financial activity and thus permissible for banking organizations. The banks are outraged by this delay–and they should be; but they do not seem to see either the link between the separation idea and the realtors’ successful defense, or the conflict between their opposition to Wal-Mart’s entry into banking and the realtors’ opposition to their entry into real-estate brokerage.

In other words, by NAR hammering (sorry) the issue of separation of business and commerce with Home Depot and Wal-Mart which keeps the issue in the forefront (ie Glass-Steagall Act), the depression era law designed to keep commercial banks out of risky investment activites, thought to be one of the main causes of the depression. As a result, the banking industry has been tied up in a legal morass in Washington for five years.

Whether you agree with the danger of banking in commerce or not, this keeps banking out of the brokerage business for now, thereby reducing competition. Ultimately, I think its only a manner of time before banking gets in the house selling game. There is significant financial incentive because it dovetails nicely with their mortgage business.

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Post-Memorial Day Weekend, Things I Didn’t Have Time To Grill List-o-Links

May 30, 2006 | 12:01 am | |

Source: NYT from “Pimp My Grill”

I’m so exhausted from all the eating and activities afforded me this weekend that I need to go to work to rest up. Here’s a smattering of links I didn’t do anything with. Enjoy:

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The Fed And FDIC Studies: Retirement’s Impact On Housing Trends

April 14, 2006 | 2:38 pm | |

[Sorry for the late posts today, a bit under the weather -ed]

There has been a lot of discussion about retirement and housing late – here are two studies that discuss the trends. The fist is a report by FDIC that discusses baby-boomers and immigrants with housing demand. The second study, which is not available yet, was done by the Federal Reserve discusses the the impact of the growing baby-boom retirement population and its impact on the economy.

Banking on the Baby Boomers: How Demographic Trends Are Reshaping the Financial Landscape [FDIC (pdf)]

A snapshot of U.S. population growth during the past 20 years shows significant increases in the numbers of aging baby boomers and foreign-born individuals. Although these groups differ in age, income, education level, and household size, both are expected to significantly affect the demand for owner-occupied housing.

The housing discussion begins on page 17.

  • Baby boomers are living longer, are wealthier and more active than prior generations
  • Current research finds that they don’t exclusively favor the sun belt states anymore
  • They are downsizing but want homes with more amenities.
  • They prefer 1-family, 1-story homes with hgiher ceilings and larger garages
  • Imigrants are a large group with considerable potential for growth


A new Federal Reserve study has shaken economists’ forecasts by suggesting the U.S. economy will have to decelerate much more over the next decade than most now expect.

Revolutionary Fed Study Has Economists Rethinking Forecasts [Bloomberg]

The study, to be published in July, finds that the retirement of the Baby Boom generation will force far-reaching adjustments in the way the economy works. Forecasts for everything from growth and employment to corporate profits and interest rates will have to be recast.

The problem will be that the retirement of baby boomers will weaken the labor force over the next 10 years. With a smaller work force to sustain the economy, there is more inflationary pressures and wage pressures ahead. This could complicate the Fed’s task of keeping inflation reigned in by keeping moortgage rates at a higher level.


Recession Scenarios And Other Observations To Bank On From FDIC

March 27, 2006 | 12:02 am |

To their credit, the FDIC writes in a good summary on the economy and some possible concerns for a recession in FYI: An Update on Emerging Issues in Banking: Scenarios for the Next U.S. Recession [FDIC]

Its a surprisingly good narrative on banking as it relates to housing as these industries go hand-in-hand in estimating when we may see the next recession.


The risk of a housing slowdown is another area of concern going forward. The recent housing boom has been unprecedented in modern U.S. history.2 It has been suggested by many analysts that the housing boom has been a significant contributor to gains in consumer spending in recent years. Indeed, a number of the FDIC roundtable panelists pointed to the apparent connection between rising real estate wealth during the past four years and the sustained strength in consumer spending during that period. Because consumer spending accounts for over two-thirds of U.S. economic activity, any shock to consumer spending, such as that which might be caused by a housing slowdown, is a concern to overall economic growth.

Housing analysts are in disagreement as to whether or not recent signs point to a moderation in housing activity or the beginning of a more significant correction. Currently, inventories of unsold homes and sales volumes are among the indicators pointing to a housing slowdown. Inventories of unsold existing homes rose from under four months of supply at current sales volume in early 2005 to 5.3 months of supply as of January 2006. Meanwhile, the pace of existing home sales has been trending lower since last summer. A clear trend in the direction of home sales and prices may not be evident until the completion of the peak spring and summer selling season later this year.

Many analysts argue that home prices in the hottest coastal markets, especially in the Northeast and California, could be poised to decline in the near future. For example, PMI Mortgage Insurance Company analysts place essentially even odds that home prices will decline during the next two years in a dozen cities in California and the Northeast.4 Should home prices either stop rising or begin to fall in these areas, local banks and thrifts would need to look to non-residential loans to support revenue growth.


There are concerns, however, that changes in the structure of mortgage lending could pose new risks to housing. These changes are most evident in the rising popularity of interest-only and payment-option mortgages, which allow borrowers to afford more expensive homes relative to their income, but which also increase variability in borrower payments and loan balances.


10 percent of U.S. households may be at heightened risk of credit problems in the current environment. This group mainly includes households that gained access to mortgage credit for the first time during the recent expansion of subprime and innovative mortgage loan programs.

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