Syron: Mortgage Debt Market Still Growing

Speaking to investors recently, the CEO of Freddie Mac expressed confidence that the booming growth of mortgage debt outstanding is likely to continue, if at a slower pace, in the coming years.

Freddie Mac estimates that single-family mortgage debt outstanding totaled $6.7 trillion at the end of last year, with Freddie Mac holding 16% of that amount, Fannie Mae holding 25% and others holding 59%.

Richard Syron said he is confident that growth in mortgage debt will continue to support growth opportunities for Freddie Mac.

"The housing mission that the company has is an advantage, and I am convinced that the harder you look at this, the more comfort you have in what our mission is," he said.

Freddie Mac Projects that mortgage debt will grow at a rate of just over 8% annually over the next 10 years. And despite the volatility in mortgage lending volume, Mr. Syron said demand for mortgage debt is considerably less volatile than some other sectors, such as the semiconductor industry.

However, he also said the growth rate is not likely to match the company's stellar growth performance over the past 10 years.

As a result, he said Freddie Mac will likely have to look at the way it deploys capital, and he suggested the company may consider increasing its dividend payout.

Banks and other depository institutions have bid up the price for home loans during the past two years, limiting the growth of Fannie Mae and Freddie Mac's retained portfolios. Weak demand for business loans is one reason that banking institutions have grown hungry for mortgage assets, of course. But the Freddie Mac chief believes there may be another culprit.

The government-sponsored enterprises themselves are making the mortgage market more attractive to banks, he said at a Banc of America investors' conference.

In part, this is because the guarantee that the GSEs put on mortgage securities relieves other investors of default risk. But that's only part of the story, Mr. Syron said.

He believes banks rely heavily on the GSEs as an exit strategy when they want to reduce their mortgage holdings.

Currently, depository institutions find it attractive to pay a low rate of interest on short-term deposits and use this funding to place a large volume of mortgages on their balance sheets, he said. But they can only do this if they can unload the mortgages when interest rate conditions change.

Banks know that they "have a takeout strategy" because of the GSEs, he said.

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