Mortgage Securitization Rate Hits New High in 2009

The percentage of new mortgages rolled into securities climbed to a new record high in the first half of 2009 as the mortgage market’s dependence on government-related programs continued to grow. According to a new analysis by Inside MBS & ABS, a hefty 82 percent of the estimated $995 billion in mortgages originated in the first six months of the year ended up in mortgage-backed securities. This was up from 79 percent in 2008 and was the highest level ever recorded by Inside MBS & ABS.

While much of the blame for the recent mortgage crisis has been leveled at mortgage securitization, the plain fact is that most of the major government mortgage programs rely heavily on securitization. Some 93 percent of FHA and VA mortgages and 89 percent of Fannie Mae and Freddie Mac eligible mortgages were securitized in the first half.

Little Change in Mortgage Product Mix in 2Q09

Despite a 24 percent jump in mortgage origination activity between the first and second quarters of this year, there was relatively little change in the mix of mortgage products in the marketplace. According to a new analysis by Inside Mortgage Finance slated to be published this week, conventional conforming mortgages–the kind sold to Fannie Mae and Freddie Mac–continued to account for the largest share of new mortgages made in 2Q09 at 69 percent. This was down slightly from the 70 percent share found in 1Q09. The FHA/VA share of new originations rose modestly from 22 to 23 percent during the same period. Meanwhile, the jumbo share and home-equity loan share of new originations remained flat in the second quarter at 5 percent and 3 percent, respectively.

Mortgage Originations Down 44% in Third Quarter of 2008

Preliminary numbers compiled by Inside Mortgage Finance suggest that mortgage originations tumbled by $115 billion or 26 percent between the second and third quarters of this year. That would put 3Q08 mortgage volume down a hefty 44 percent from the same period a year ago. If mortgage originations remain weak in the fourth quarter, a distinct if not likely possibility at this point, total volume for the year will come in at only about $1.5-1.6 trillion – or 34 percent below last year’s $2.43 trillion level.

Currently, the only sectors of the mortgage market that are seeing increased activity are FHA and VA. FHA originations, in particular, are continuing to grow while total volume declines. There are expectations that the federal government, which now controls Fannie Mae and Freddie Mac, will start loosening the two government-sponsored enterprises’ underwriting requirements and lower their fees in the months ahead. That could provide a badly needed boost to the residential mortgage market.

Fannie’s and Freddie’s Business Took Nose-Dive in July

Despite a mortgage market environment that has pushed more and more borrowers their way, Fannie Mae and Freddie Mac saw a sharp drop in their purchase volume last month. According to numbers compiled by Inside Mortgage Finance, Fannie’s mortgage securitization activity tumbled 34 percent between June and July, while Freddie’s plummeted 49 percent. The big decline in government-sponsored enterprise mortgage activity appears attributable to a combination of tighter underwriting standards and a continuing slowdown in home purchases.

Importantly, the slowdown in GSE mortgage activity does not appear to be spilling over into the FHA or VA mortgage markets. The securitization of FHA and VA loans into Ginnie Mae mortgage securities slipped only 6 percent between June and July. As a result, Ginnie’s share of the total mortgage securities market jumped to 30 percent in July – the highest level seen in a generation.

Mortgage Originations Dip 10%, Agency Share Soars in 2Q08

Tighter underwriting and a souring economy took their toll on residential mortgage originations in the second quarter of 2008. According to preliminary numbers compiled by Inside Mortgage Finance, the volume of new mortgages being made fell about 10 percent in the most recent quarter. That would put the second quarter’s total originations at approximately $430 billion – or the lowest quarterly production seen in nearly eight years.

Separately, more and more mortgage activity is being funneled into FHA, VA and Fannie Mae/Freddie Mac loans. Inside Mortgage Finance’s latest numbers suggest the so-called agency share of the mortgage market climbed to over 90 percent in 2Q08. This is the highest level seen in at least 50 years.