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Mortgage Debt Still Growing Fast

Single-family residential debt, a market that totaled less than $2 trillion in 1986, passed the $8 trillion mark last year, according to Fannie Mae.

And economists at the secondary market giant expect the growth to continue to exceed overall economic growth, though the pace of growth in mortgage debt outstanding may slow.

During the first quarter of this year, mortgage debt grew at an annualized pace of 9.5% to reach $8.281 trillion, up from $8.071 trillion at the end of last year, Fannie Mae chief economist David Berson told Mortgage Servicing News.

At the end of last year, conventional mortgage loans accounted for 92% of single-family debt outstanding, FHA for 5% and VA loans for 3%.

During 2004, single-family mortgage debt increased by nearly $1 trillion over the course of the year.

Mr. Berson said mortgage debt has grown at a double-digit clip for seven straight years, rising 12% in 2003, 12.6% in 2003 and 13.9% in 2004.

He said strong home sales, rising home prices and low interest rates have been the biggest drivers of that trend.

In addition, the growth of home-equity lending, in some part fueled by home price appreciation, has also been a factor.

Refinancing to take advantage of low rates has also helped, since even borrowers who do not "tap" their built-up equity substantially typically take out a larger loan than the one that is being replaced.

That's because borrowers typically roll closing costs into the new loan when they refinance.

Mr. Berson said the growth in mortgage debt last year exceeded Fannie Mae's expectations.

"I don't think anyone predicted the pace of home price gains over the past two years. Nor do I think anyone expected mortgage rates to fall as much as they did," he said.

But he still expects the growth rate for mortgage debt outstanding to slow, reflecting home sales that may fall a bit next year and a slower pace of home price appreciation. That means the components of MDO growth will weaken.

Fannie Mae is projecting that MDO will grow at a pace of 7% to 9% over the next two years.

Rising home values have also facilitated growth in home-equity debt, he noted. Home-equity debt outstanding accounted for over $911 billion of residential debt in the first quarter.

Multifamily mortgage debt also increased last year, with total multifamily debt standing at $601.3 billion in 2004, up from $557.2 billion in 2003.

Fannie Mae's analysis of mortgage debt outstanding is based on numbers from the Federal Reserve Board.

MDO GROWTH: 1-4 Family Mortgage Debt Outstanding

2004 $8.1 Trillion 2003 $7.1 Trillion 2002 $6.3 Trillion 2001 $5.6 Trillion 2000 $5.1 Trillion Source: Fannie Mae/Federal Reserve Board

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