What will 2011 hold for the mortgage industry? It is shaping up to be a poor year for originations, a big year for servicing, and a key year for the future of Fannie Mae and Freddie Mac.
2011 is not predicted to be a stellar originations year.
The Mortgage Bankers Association is looking at less than $1 trillion in new originations this year, a level not seen in almost 20 years. Refis are expected to decline as rates trend upward and the purchase mortgage market, the real indicator of industry health, remains mired.
The back end? That’s another matter. This year may well top last year’s enormous 1.3 million in foreclosures, so the servicing end of the business will continue to generate the light and the heat in the mortgage business. Look for a continuing tidal wave of foreclosures, REO, short sales, loss mit and loan modifications.
Anti-fraud will be busy as well, especially on the back end, as fraud continues apace in the business, shifting from the originations side to the servicing side.
As part of the enormous number of foreclosures, home values won’t be recovering broadly this year (though they will in some regions). It’s astonishing that, nationwide, home prices are down by an average of 30% from market highs.
The other big issue this year will be the resolution of the Fannie Mae and Freddie Mac issue.
Whatever the resolution Treasury comes up by Jan. 31, it is sure to be debated all year by the new Congress.
Some of the proposed solutions include a complete privatization of the two, a splitting up into mini-GSEs, or combining them with Ginnie Mae to make a super-government mortgage agency.
Complete privatization is a fantasy. The non-government part of the mortgage industry is as paralyzed as if it had been bitten by a cobra. Combining them with Ginnie Mae would be a short-term solution but one that would stifle private activity for years and even decades. So a mini-GSE structure with less systemic risk on any one piece looks like the most sellable of those three solutions.
Fannie and Freddie are an enormous part of the mortgage industry. They helped save the mortgage industry from implosion during the recession. However, they are bleeding holes in the government (taxpayer) balance sheet. They must be fixed this year.
