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Risks Facing the Mortgage Market

Analysis by the AEI Housing Center predicts the housing market faces numerous stress points, the recovery is more likely to be an elongated U, not V-shaped. 

The report found that the mortgage market has more risk than previously acknowledged and that the federal government’s dominance in the “under-capitalized” U.S. housing finance systems means many of these stresses could fall on the Department of the Treasury, Ginnie Mae, the Federal Reserve, and the Federal Housing Finance Agency (FHFA). 

AEI said delinquencies could soar in a steep recession, even with forbearance. The report also said there could be a drop in loan originations in both the present and long term. 

The drop may be attributed to the reduced demand, the difficulty to close on home sales and mortgage transactions, extended timelines, and reduced capacity brought on by growing forbearance calls.

Additionally, potential borrowers may have lower credit scores, debt-to-income ratios, and down payments. AEI also said many originators and servicers “will fail or close up shop.” 

The report also projects the Non-Qm market to recover slowly, as many Non-QM originators have already stopped taking in new applications. 

AEI noted that 93% of single-family mortgages are held by federal agencies, 64% are guaranteed by the GSEs and Ginnie Mae and covered by the CARES Act, and 29% consists of loans held by banks and credit unions. The remaining 8% of single-family loans are held by a variety of servicers and are not covered by the CARES Act. 

Ginnie Mae announced the issuance of its mortgage-backed securities (MBS) totaled $55.21 billion in March and provides financing for more than 211,000 homeowners and renters. 

The total outstanding principal balance for Ginnie Mae loans was $2.14 trillion—an increase from March 2019’s $2.05 trillion.

AEI’s report revealed 4.31% of Ginnie Mae loans were in forbearance, compared to 1.69% of loans serviced by the GSEs. 

The analysis states that as of April 7, these shares have continued to increase and that it is “reasonable to project” that by the end of April, nearly 10-15% of Ginnie Mae loans and 4-8% of GSE loans will be in forbearance. 

About Author: Mike Albanese

A graduate of the University of Alabama, Mike Albanese has worked for news publications since 2011 in Texas and Colorado. He has built a portfolio of more than 1,000 articles, covering city government, police and crime, business, sports, and is experienced in crafting engaging features and enterprise pieces. He spent time as the sports editor for the "Pilot Point Post-Signal," and has covered the DFW Metroplex for several years. He has also assisted with sports coverage and editing duties with the "Dallas Morning News" and "Denton Record-Chronicle" over the past several years.
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