Economic Mortgage Market Developments by yu3413

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									                                   Economic & Mortgage
                                   Market Developments

                                                               April 12, 2007
                                Overview:
           • Overall economic conditions remain subdued, with another quarter
             of sub-par GDP growth expected. Growth should remain below-
             trend for most of 2007 – eventually pulling core inflation down and
             allowing some modest easing by the Federal Reserve.

           • Housing activity continued to be mixed in February, with existing
             home sales showing strength and new home sales declining.
             Leading indicators of housing activity have also been mixed.

           • The modestly inverted yield curve modestly un-inverted, partially in
             response to the latest FOMC policy statement, in which an explicit
             consideration of tighter policy was removed.

           • Subprime mortgage delinquencies rose sharply at the end of 2006,
             and we expect them to move up over the next year. Separately,
             mortgage debt growth slowed in 2006, especially toward year-end.

           • Despite continued below-trend economic growth, core inflation
             remains stubbornly high and above the Fed’s target range.

           • Economic growth is projected to remain below trend rate for most
             of the year in response to the lagged impact of tighter monetary
             policy, still-high energy costs, and the slowing housing market.

           • We anticipate two easing moves by the Federal Reserve later this
                                   et Developments
             year as modest economic growth continues and core inflation falls a
             bit more, with long-term rates holding at close to current levels.

           • Home sales are projected to fall further in 2007, although we have
             probably seen the biggest drops already. National home price
             appreciation is likely to move modestly negative in 2007.

           • Mortgage originations and MDO growth are forecast t o decline
             again in 2007, with a large drop in purchase originations.

David W. Berson, David Kogut, and Molly R. Boesel
Economics and Mortgage Market Analysis
             The Outlook for the Economy, Housing, and Mortgage Finance Markets

•   Overview: Economic activity continues to be subdued, and should remain so.
    Most of the recent economic data confirm that economic growth was tepid in the first quarter. The
    manufacturing survey index from the Institute of Supply Management (ISM) slipped to 50.9 in March –
    barely above the 50.0 level that signifies an expanding manufacturing sector. Moreover, the ISM’s non-
    manufacturing index dropped to 52.4 in March – the lowest level since early 2003. Other data also suggest
    that manufacturing activity is waning: orders for all manufactured goods were down by 0.8 percent from
    year ago- levels in February, orders for the key non-defense capital goods excluding aircraft segment fell for
    a second consecutive month in February, and manufacturing employment has fallen for 11 consecutive
    months (through March). Even small business reported that conditions are weakening, with the February
    National Federation of Independent Business (NFIB) small business optimism index down slightly.
    Measures of consumer confidence and consumer sentiment were both down in March, but not to levels that
    suggest consumer spending growth is in significant danger. Fortunately, consumer spending remains
    healthy (with three strong months in a row through February), supported by job growth. We project real
    GDP growth in 2007 will slip to 2.5 percent, the slowest performance since 2002/2003.

    At the same time that economic activity is slowing, energy prices have surged again, agricultural prices are
    up strongly (especially for corn, with demand skyrocketing for ethanol use), and core inflation remains
    stubbornly high and above the top of the Federal Reserve’s target range. This makes policy decisions by
    the Fed even more uncertain than usual. Should it respond to the slower economic growth and ease, or to
    the persistent above-target core inflation and tighten? Thus far, the Fed has been waiting for a more
    decisive move in one direction or another for growth and inflation – and so has kept monetary policy
    unchanged since last June. We continue to expect that growth will remain sub-par this year while core
    inflation will eventually fall within the target range, allowing the Fed to ease modestly later in the year.

•   Housing: Activity was still mixed in February.
    New and existing home sales moved in opposite directions again in February, although the timing of
    when sales are reported combined with weather fluctuations were likely to blame. Since existing sales
    are reported at contract closing and new at contract signing, the existing sales represent buying behavior
    before the month in which they are reported. Worse-than-normal weather in the second half of January
    and in February depressed new sales, while warmer weather in December and early-January boosted
    existing sales. Leading indicators of sales were mixed as well – with the housing market index from the
    National Association of Homebuilders (NAHB) down to 36 in March and purchase applications from
    the Mortgage Bankers Association’s (MBA) mortgage applications survey up by 3 percent.

         ·   New home sales fell by 3.9 percent in February to 848 thousand units (seasonally adjusted
             annual rate, o r SAAR), the slowest pace since 2000. Actual sales in the first two months of
             2007 were 22.6 percent lower than a year ago.

         ·   Total existing home sales (single-family plus condos/co-ops) increased by a surprising 3.9
             percent in February to 6.69 million units (SAAR), the strongest pace since last March. Actual
             sales in the first two months of 2007 were 3.5 percent less than a year ago.

         ·   Total housing starts jumped by 9.0 percent in February to 1.53 million units (SAAR), although
             the trend is still down. Single- family starts rose by 10.3 percent, and multifamily starts climbed
             by 4.1 percent. Starts in the first two months of 2007 were 32.4 percent lower than a year ago.

         ·   Manufactured housing shipments for February had not been released before this report was
             completed, but the trend has been strongly downward since 1999.
                                                     2
•   Interest Rates: Wording changes from the Fed helped revert the yield curve.
    The Treasury yield curve, which was modestly inverted over a large portion of its range (for example, the
    spread between 10-year and 2-year Treasury notes averaged around -12 basis points from November
    through February) regained (barely) it’s usual upward sloping shape at the end of March. The 10-year/2-
    year spread is currently about +6 basis points. By way of comparison, the spread averaged +71 basis points
    from 1975-2006, so the current upward slope hardly registers – but the same could be said of the magnitude
    of the recent inversion.

    One of the reasons for this shift in relative short- and long-term interest rates was a change in the wording
    of the policy statement issued after the March Federal Open Market Committee (FOMC – the policy-
    making arm of the Federal Reserve) meeting. For some time, the FOMC (in its discussion of inflation
    risks) included the words “The extent and timing of any additional firming that may be needed to address
    these risks…” in its policy statement. The FOMC removed these words in the March policy statement,
    which led many financial market participants to assume that the Fed would take a more balanced view of
    future changes in monetary policy, rather than have a presumption that if there were future changes, they
    would be to tighten policy. This had the effect of moving shorter-term interest rates down and long-term
    rates up – although the magnitude of these moves was very small.

    In fact, the Fed made no specific changes to monetary policy at the March FOMC meeting, keeping the
    federal funds rate at 5.25 percent – where it has been since the June 2006 FOMC meeting. Yields on 10-
    year Treasury notes have edged up to around 4.65 percent – the highest levels in about a month, but still
    well-below the 4.83 percent it has averaged over the past 12 months (probably held in check by an edging
    down of inflation expectations since last August).

•   Mortgage Markets: Subprime mortgage delinquencies rose sharply in 2006Q4.
    Recent data from the MBA’s National Delinquency Survey contained more troubling news for the
    subprime mortgage market. In the fourth quarter of 2006, the serious delinquency rate (SDQ – the share
    of loans 90 days or more past due or in the process of foreclosure) for subprime mortgages rose to 7.8
    percent from 6.3 percent in the same period in 2005. On the other hand, over the same period the SDQ
    rate for prime mortgages was unchanged at 0.9 percent while the SDQ rate for government loans
    declined from 5.2 percent to 4.9 percent. Total delinquency rates on subprime mortgages remain below
    the levels experienced in 2001 when the SDQ rate for subprime loans rose above 12 percent. Data
    regarding loans backing subprime non-agency asset-backed securities (ABS), however, suggest that
    subprime loans originated in 2006 are performing worse than the 2000 originations that were the
    primary driver of the high SDQ rates in 2001. The expectation of continued poor credit performance of
    the most recently originated subprime loans will likely continue to push the total delinquency rate for
    subprime loans higher over at least the next few quarters.

    According to the most recently released Flow of Funds report from the Fed, growth of the overall
    mortgage market decelerated moderately in 2006Q4. Total residential mortgage debt outstanding
    (MDO) growth fell to a compound annual rate of just 6.4 percent from 8.1 percent in the third quarter
    and 13.4 percent during the final quarter of 2005. Although some of this slower growth during the
    fourth quarter can be attributed to seasonal factors, the deterioration of the housing market also clearly
    had an impact – as the quarterly pace of growth recorded over the final three months of last year was the
    slowest reported in the fourth quarter of any year since 1997. Home equity MDO growth was
    particularly weak during the quarter, slowing to a compound annual rate of just 2.8 percent following
    growth of 20.4 percent and 13.0 percent in the second and third quarters of last year, respectively. Last
    quarter's rate of home equity MDO growth was the slowest recorded since the final quarter of 2001 and
    may signal that borrowers were reluctant to use home equity loans to extract equity amid declining home
    prices in some areas of the country. The inverted yield curve may also have made it more economical
    for those borrowers wishing to extract home equity to do so through a cash-out refinance transaction.
                                                      3
•   Inflation: Core inflation remains stubbornly high.
    Despite tightening by the Federal Reserve from 2004-2006 that has resulted in substantial slowing of
    money growth and below-trend economic activity for four of the past five quarters (soon to be joined by
    the first quarter of 2007) core inflation remains above the top of the Fed’s target range. Using the Fed’s
    preferred inflation measure (the core price index for personal consumption expenditures), the current 12-
    month growth rate of 2.4 percent remains above the 2.0 percent target range top – and has been moving
    upward for the past two months. Even though the direct impact of higher energy prices is eliminated by
    using the core rate, to the extent that energy prices filter into the prices o f non-energy goods and
    services, they can still push core inflation higher. Moreover, the recent shift away from homeownership
    toward rental housing has pushed the rental equivalency portion of the core rate up. At some point,
    however, on-going below-trend economic growth will offset higher energy prices (plus, energy prices
    are more likely to fall in the second half of the year than to rise further), and record- high homeowner
    vacancy rates should moderate rent increases (more of the vacant units will find their way into the rental
    market – reducing the pace of rent increases). This suggests that core inflation should begin to move
    down again in the second half of the year – probably to within the Fed’s target range.

•   Economic Outlook: Below-trend economic growth expected in 2007.
    There are still big encumbrances on the U.S. economy coming from two years and 425 basis points of
    tightening by the Fed (which always affect the economy with a lag), historically high nominal oil prices,
    and a slowdown in housing activity (which in turn is cooling home price appreciation and the resulting
    consumer spending, especially through mortgage equity withdrawals) . Moreover, the ongoing
    tightening of lending standards (especially for subprime and other non-traditional mortgage products)
    may reduce housing demand and consumer spending still more. Even with possible easing by the Fed
    later this year, these drags will probably keep economic growth below trend through 2007.

    Despite these headwinds, jobs continue to be created at a reasonable (albeit below-trend) pace, corporate
    profit growth remains strong, and exports are growing. As a result, we continue to project further sub-
    par growth rather than recession. The shift to an upward sloping yield curve reinforces this view. The
    odds of a downturn are still around 30 percent, but it is more likely that growth will continue instead.
    Still, we have revised down our projection of real GDP growth in 2007 to 2.5 percent – modestly below
    the 3.0-3.3 percent pace of trend growth.

•   Interest Rate Outlook: The Fed should ease a tad in 2007, with long-term rates stable.
    Our projections of both continued below-trend economic growth and core inflation finally falling into the
    Fed’s target range on a sustained basis should allow for some modest easing by the Federal Reserve in the
    second half of the year. We project that the Fed will ease twice in the second half of the year, bringing the
    federal funds rate down to 4.75 percent by year-end, and allowing the yield curve to steepen modestly
    further. Note, however, that it would likely take both a reduction in core inflation and a continued slow
    pace of economic growth to convince the Fed to move. The biggest risk to this outlook would be if core
    inflation remains above the top of the Fed’s target range. The Fed would find it difficult to ease in such a
    scenario, and it might instead tighten further – which would increase the odds of an economic downturn
    later in 2007 or in 2008.

    We continue to project that long-term interest rates will remain relatively stable over the remainder of 2007.
    Rates are never exactly flat, of course, so this means that they will move in fairly narrow bands. This would
    suggest, for example, that yields on 30-year FRMs would range between about 6.00-6.50 percent this year,
    while yields on 10-year Treasury notes should range between about 4.40-4.90 percent. Greater economic
    weakness than we expect or flights to quality from economic or world-wide financial problems would move
    rates toward the bottom of this range, while an uptick in economic activity and/or inflation would move
    them toward the top – as would additional tightening by the Fed.
                                                      4
•   Housing Outlook: Housing activity should slow still more in 2007, with modestly
    declining national home prices likely.
    The combination of below-trend economic growth (which acts to moderate job/income growth as well as
    consumer confidence), the sharp falloff in affordability in recent years (from both rising home prices and
    higher mortgage rates), and a modest decline in investor demand (after rising to record levels early last
    year) led to the sharp drop in home sales for 2006, and should lower them still more this year. For 2007, we
    expect a further drop of 7-8 percent for both new and existing home sales, mostly in response to additional
    declines in investor activity in the housing market (although recent regulatory guidance on subprime and
    non-traditional mortgage lending may play a role, as well). The projected level of sales for 2007 would be
    the lowest since 2002, while the two-year drop in sales would be the largest since the housing downturn of
    1989-91. Single-family housing starts are projected to decline by about 16 percent this year after a nearly
    15 percent drop in 2006 – which will help to end the glut of unsold new homes, and allow home prices to
    begin to rise again, albeit modestly, later in 2007.

    The surge in unsold inventories (the highest since early 1991), is putting downward pressure on home
    prices – with both new and existing median home prices down in February from a year earlier. We expect
    price weakness to continue over the next few quarters (until the inventory overhang is significantly
    reduced), bringing home price growth by most measures into negative territory for 2007 – although only
    slightly so. It should be the case that those areas with the strongest economies will continue to see positive
    in-migration and housing demand – and thus home price growth. But areas with weak economies and/or
    large drops in investor demand will probably see home price declines, and perhaps large ones.

•   Mortgage Market Outlook: Weaker purchase originations, more refinancings, a
    lower ARM share, and slower MDO growth are in store for 2007.
    Following a moderate 4.3 percent decline in purchase originations to $1.45 trillion in 2006, we expect a
    more significant decline in purchase volumes this year as both average home prices and the level of
    home sales activity continue to moderate. We currently project that purchase origination volumes will
    fall by an additional 10.8 percent during 2007 to $1.29 trillion – the lowest volume recorded since 2003.
    In contrast, the expected continued low level of long-term mortgage rates as well as refinancing by
    ARM borrowers in anticipation of upward rate resets (including subprime borrowers) should cause
    refinance activity to increase a bit this year. Refinance originations are projected to climb by about 2.1
    percent to $1.34 trillion, after falling in 2006 by almost 14 percent to $1.31 trillion – the lowest volume
    of refinance activity since 2000. Total single-family mortgage originations (the sum of purchase and
    refinance originations) are expected to fall to about $2.63 trillion this year – a decline of a little under
    5.0 percent from last year’s estimated volume of $2.76 trillion.

    While we expect that spreads between rates on FRMs and ARMs will widen somewhat as the Federal
    Reserve eases monetary policy later this year, it is likely that the expected continued low level of long-
    term FRM rates and additional moderation in home prices will keep the demand for ARMs at, or slightly
    below, current levels throughout the remainder of 2007. In addition, regulatory guidance regarding both
    non-traditional mortgage products and subprime mortgages (market segments dominated by ARM
    lending) will also put downward pressure on the prevalence of ARMs relative to recent years.

    Following five years in which single-family MDO grew at double-digit rates, growth in 2006 slowed to
    a still- strong 8.8 percent (with the slower pace stemming from lower levels of home price appreciation
    as unsold inventories piled up, less refinance activity, and fewer home equity loans). While refinance
    activity (both regular rate-term and cash-out, as well as households moving from subprime or other
    nontraditional mortgage products into more standard mortgages) should edge up a bit in 2007, we expect
    that additional home sales and price weakness will push single- family MDO growth down to about 6.4
    percent this year. As in the 1992-95 period, MDO growth of 5-6 percent may be present for a while.
                                        5
What Impact Will Scheduled Mortgage Payment Resets Have on Refinance Activity in 2007?

As we discussed in the September 2006 edition of Economic and Mortgage Market Developments
(EMMD), a substantial amount of outstanding mortgages have payments that are scheduled to reset this
year. Most of these loans are adjustable rate mortgages with coupon rates that will adjust upward and
interest-only (IO) mortgages with IO periods that are expiring. Some of these mortgages will be
adjusting for the first time, perhaps subjecting borrowers to significant payment shock. In response to
the anticipated increase in their mortgage payments many of these borrowers will attempt to refinance.
As a result, refinance originations this year might be higher than expected since some portion of
refinance activity will be driven by factors other than the general level of mortgage rates (the primary
historical driver of refinance activity). I n an environment characterized by a deteriorating housing
market and tightening lending standards, however, some borrowers who attempt to refinance their
existing mortgages may find that they are unable to do so. This is especially true of current subprime
borrowers (i.e., households with a history of credit problems).

Chart 1 below provides updates to estimates presented in the September 2006 EMMD of the dollar
volume of loans backing agency and non-agency MBS/ABS with payments that are scheduled to reset in
2007 by MBS/ABS type. (The non-agency MBS/ABS estimates are based upon data from
LoanPerformance while the agency MBS estimates are based upon agency MBS disclosure data). As of
the end of 2006 a total of $649 billion of securitized single-family first-lien mortgages were scheduled to
reset over the following 12 months. This total is made up $105 billion in loans backing agency MBS
(MBS issued by Fannie Mae, Freddie Mac, or Ginnie Mae), $55 billion in loans backing non-agency
jumbo MBS (sometimes called non-agency prime MBS), $216 billion in loans backing non-agency Alt-
A MBS, and $273 billion in loans backing non-agency subprime ABS.
                                                                                                      Chart 1
                                                                          Dollar Volume of Securitized Loans Scheduled to Reset in 2007
                                                                                 Backing Outstanding MBS/ABS by MBS/ABS Type
      Dollar Vollume of Outstanding Loans ($Billions)




                                                        $350


                                                        $300
                                                                                          $273

                                                        $250
                                                                        $216
                                                        $200

                                                        $150


                                                        $100
                                                                                                                             $64
                                                                                                          $55
                                                        $50
                                                                                                                                                 $17                 $23

                                                         $0
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                                                          Source: LoanPerformance, Agency MBS Disclosures

The securitized loans on which the estimates in Chart 1 are based represent about $5.5 trillion out of an
estimated $9.2 trillion in single-family first- lien mortgage debt outstanding as of the end of 2006.
Assuming that the remaining 40 percent of (mostly unsecuritized) single- family first- lien mortgages for
which we do not have detailed data have payment reset characteristics similar to the loans on which the
                                          6
estimates in Chart 1 are based would suggest that roughly $1.1 trillion in single- family first- lien
mortgages face a payment reset in 2007.

Historically, a large portion of borrowers facing a payment reset have been able to mitigate the financial
impact of a payment shock by refinancing. Table 1 below provides estimates (based upon data from
LoanPerformance) for the past three years of the dollar volume of outstanding loans backing non-agency
Alt-A, jumbo, and subprime MBS/ABS at the start of each year and the share of those loans that paid off
sometime during the year. The table also contains estimates by MBS/ABS type of the dollar volume of
loans outstanding at the start of each year with payments that were scheduled to reset sometime over the
next 12 months and the share of those loans that had paid off by the end of the year. (Similar estimates
for loans backing agency securities are unavailable).

                                                          Table 1
                        Estimates of the Share of Loans Backing Non-Agency MBS/ABS That Paid Off
                                                                          Loans Outstanding at Start of Year
                     Loans Outstanding at Start of Year                     Scheduled to Reset During Year
                  Dollar Volume              Share that Paid Off       Dollar Volume               Share that Paid Off
                      ($Billions)                   During Year            ($Billions)                   During Year
                                              Loans Backing Non-Agency Alt-A MBS
    2004                      $110                          33%                    $8                            40%
    2005                      $235                          30%                   $34                            40%
    2006                      $470                          24%                  $149                            37%
                                            Loans Backing Non-Agency Subprime MBS
    2004                      $266                        42%                  $73                               52%
    2005                      $444                          42%                  $105                            57%
    2006                      $600                          36%                  $179                            56%
                                              Loans Backing Non-Agency Jumbo ABS
    2004                      $243                        26%                   $36                              20%
    2005                      $318                          23%                   $68                            39%
    2006                      $363                          15%                   $63                            41%
    Source: LoanPerformance


There is a fair amount of variation across years, but in 2005 and 2006 an average of 39% of loans
backing Alt-A MBS with a scheduled payment reset refinanced in each year compared with 27% of all
loans backing Alt-A MBS. Similarly, an average of 56% of loans backing subprime ABS facing a
payment reset refinanced (compared with 39% of all loans backing these securities). In addition, an
average of 40% of resetting loans backing jumbo MBS refinanced (compared with 19% of all loans
backing subprime securities). Obviously, loans facing a payment reset are much more likely to
refinance than those not facing such a payment increase. In fact, loans backing non-agency mortgage
securities alone drove about $180 billion of refinance activity in 2006 – refinance volume that might not
have otherwise occurred given that the average 30-year FRM rate rose by 55 basis points and the
average 1-year ARM rate rose by 104 basis points between 2005 and 2006.

Given that a larger amount of mortgages are scheduled to reset this year than in 2006, it is reasonable to
infer that the amount of refinance activity driven by resetting loans would increase in 2007. Indeed, if
the average refinance shares noted above in recent years held in 2007 we would expect that roughly
$260 billion in loans backing non-agency MBS/ABS would refinance due to an anticipated payment
reset sometime during the year. However, widely publicized problems in the subprime segment of the
mortgage market could change these market dynamics. In response to the very poor performance of
recently originated subprime loans in conjunction with a deteriorating housing market, some surviving
subprime lenders have stopped making mortgage credit available to borrowers with the lowest credit
scores. For example, rate sheets from WMC Mortgage (a GE subsidiary specializing in subprime
                                                                     7

       lending) from mid-March suggest that, in contrast to a month earlier, it is no longer offering loans to
       borrowers with FICO scores below 560.
                                                                       Chart 2
                                Distribution of Loans Scheduled to Reset in 2007 Backing Non-Agency Subprime ABS
                                                      by Original FICO Score and Combined LTV
                          $80

                                                                                              CLTV>97%
                          $70
                                                                                              90%<CLTV<=97%
                          $60                                                                 80%<CLTV<=90%

                                                                                              CLTV<=80%
                          $50
              $Billions




                          $40


                          $30


                          $20


                          $10


                           $0
                                   >=700              >=660-<700       >=620-<660        >=580-<620       <580
                                                                   Original FICO Score
                    Source: LoanPerformance (January 2007)


      Chart 2 (above) illustrates the distribution of the approximately $270 billion of loans outstanding at the
      end of 2006 with a scheduled payment reset in 2007 backing subprime ABS by original FICO score and
      combined LTV. Almost half of the dollar volume of these loans has a basic risk profile that looks
      relatively healthy (original FICO Score greater than 620 and combined LTV less than 90 percent).
      These borrowers shouldn’t have too much trouble refinancing into a new mortgage and some might even
      be able to transition into the prime mortgage market, particularly if they have been current on their
      mortgage payments for the past year (although with the caveat that we don’t have current income, home
      price, or FICO Score data – and movements in the wrong direction for these key factors could
      complicate the refinancing process). Borrowers with less healthy risk profiles might have more
      difficulty refinancing or will have to pay a higher mortgage rate to do so. Thus, the tightening of credit
      standards in the subprime market might dampen the impact of scheduled payment resets on refinance
      activity in 2007 compared with recent years.

David Kogut, Director of Mortgage Market Analysis
Anton Haidorfer, Senior Financial Economist
                                        Economic and Mortgage Market Forecast: April 2007
                                                06.1    06.2     06.3     06.4     07.1     07.2     07.3     07.4     08.1     08.2     08.3     08.4    2005     2006    2007     2008
Macroeconomic Variables
Real GDP (%) (chain-weight)                     5.6      2.6      2.0      2.5     1.8      2.5      2.8      3.0      3.0      3.0      3.0      3.1       3.1     3.1     2.5      3.0
Unemployment Rate (%)                           4.7      4.7      4.7      4.5     4.6      4.6      4.7      4.8      4.9      5.0      5.0      5.0       5.1     4.6     4.6      5.0
Consumer Price Inflation (%)                    1.9      5.0      3.1     -2.1     3.7      3.3      2.8      2.5      2.4      2.6      2.6      2.4       3.7     1.9     3.1      2.5
Consumer Price Inflation (% year-over-year)     3.7      4.0      3.4      1.9     2.4      2.0      1.9      3.1      2.8      2.6      2.5      2.5       3.4     3.2     2.3      2.6

Interest Rates
Fed. Funds (%)                                 4.46     4.90     5.25     5.25    5.25     5.25     5.21     4.94     4.75     4.75     4.75     4.75     3.21     4.96    5.16     4.75
1 yr. T-Note (%)                               4.63     5.02     5.09     4.99    5.01     4.77     4.61     4.49     4.42     4.40     4.41     4.44     3.62     4.93    4.72     4.42
10 yr. T-Note (%)                              4.57     5.07     4.90     4.63    4.68     4.68     4.68     4.69     4.75     4.77     4.80     4.82     4.29     4.79    4.68     4.78
30 yr. T-Bond (%)                              4.62     5.14     4.99     4.74    4.78     4.78     4.78     4.80     4.88     4.92     4.97     5.00     4.56     4.87    4.78     4.94
FRM Rate (%)                                   6.24     6.60     6.56     6.25    6.22     6.21     6.21     6.22     6.24     6.26     6.28     6.30     5.87     6.41    6.22     6.27
ARM Rate (%)                                   5.32     5.66     5.66     5.50    5.47     5.46     5.43     5.38     5.33     5.31     5.31     5.32     4.48     5.53    5.44     5.32

Housing and Mortgage Markets
Housing Starts (thous.)                       2,123    1,873    1,714    1,559   1,462    1,588    1,592    1,593    1,573    1,578    1,582    1,582    2,068    1,801   1,559    1,579
   Single family                              1,747    1,530    1,401    1,234   1,154    1,255    1,257    1,258    1,238    1,242    1,246    1,247    1,716    1,465   1,231    1,243
   Multifamily                                  376      343      313      324     308      333      335      335      335      335      335      335      353      336     328      335
New Home Sales (thous.)                       1,111    1,100    1,007    1,001     893      990    1,000    1,002      983      988      989      991    1,283    1,053     971      988
Total Existing Home Sales (thous.)            6,863    6,627    6,287    6,263   6,461    5,807    5,873    5,951    6,002    6,078    6,144    6,153    7,076    6,478   6,023    6,094

Home Prices (NSA, thous. $)
  Median new                                  244.8    246.1    236.2    243.9   242.9    234.0    231.6    239.3    241.1    236.4    235.1    243.5    240.9    246.1   240.2    242.3
      percent change (from year ago)           6.5%     6.9%    -0.1%     1.6%    -0.8%    -4.9%    -2.0%    -1.9%    -0.7%    1.1%     1.5%     1.7%     9.0%     2.2%    -2.4%    0.9%
   Median total existing                      216.9    226.8    225.0    219.3   212.3    218.4    221.1    218.4    213.7    219.3    224.4    222.1    219.6    221.9   217.5    219.9
    percent change (from year ago)             8.7%     2.9%    -1.1%    -2.7%    -2.1%    -3.7%    -1.8%    -0.4%     0.7%    0.5%     1.5%     1.7%    12.4%     1.0%    -2.0%    1.1%
OFHEO HPI (% change from year ago)            12.8%    10.3%     7.9%     5.9%     3.1%     0.9%    -0.7%    -2.0%    -0.8%    0.9%     2.4%     3.5%    13.1%     9.1%     0.3%    1.5%



Mortgage Originat'ns (bill. $, 1-4 fam.)        598   748        742      673      597      704      697      633      531      629      617      557    3,034    2,760   2,631    2,334
  Purchase                                      297   417        397      335      266      354      357      313      251      365      375      330    1,512    1,447   1,290    1,322
   Refinancing                                  300   330        345      338      331      350      340      320      280      264      242      227    1,522    1,314   1,341    1,013
Refi Share (%)                                50.2% 44.2%      46.4%    50.3%    55.4%    49.8%    48.8%    50.5%    52.7%    42.0%    39.2%    40.8%    50.4%    47.8%   51.1%    43.7%

Conventional Share (%)                        97.1% 97.2%      97.1%    96.7%    96.7%    96.7%    96.7%    96.7%    96.7%    96.7%    96.7%    96.7%    97.3%    97.0%   96.7%    96.7%
Conventional Mortg. Orig. (bill. $)             580   727        721      651      578      681      674      612      513      609      597      539    2,951    2,678   2,544    2,257

Liquidations (bill. $)                          388     550      577      527      471      552      549      505      445     495      482      439      2041    2042    2077     1860

                                              8,662 8,860
Mortg. Debt Outstdg. (bill. $,1-4 fam. 1st Lien)               9,025    9,171 9,298 9,449 9,597 9,725 9,811 9,945 10,080 10,199                           8,452   9,171   9,725 10,199
% change                                      10.3% 9.5%        7.7%     6.6%   5.6%  6.7%  6.4%  5.5%  3.6%  5.6%   5.6%   4.8%                         13.3%     8.5%    6.0%   4.9%

Mortg. Debt Outstdg. (bill. $,1-4 fam.)        9,599 9,841     10,037   10,190 10,339 10,516 10,689 10,844 10,956 11,118 11,282 11,429                    9,366 10,190 10,844 11,429
% change                                      10.3% 10.5%        8.2%     6.3%   6.0%   7.0%   6.8%   5.9%   4.2%   6.0%   6.0%   5.3%                   13.7%    8.8%   6.4%   5.4%

ARM Share of Applications (% of #)            30.2% 30.5%      28.2%    25.6%    21.4%    20.2%    19.2%    19.0%    19.0%    19.1%    19.2%    19.3%    32.4%    28.6%   20.0%    19.1%

April 5, 2007
Note: Numbers in bold italics represent Fannie Mae Economics and Mortgage Market Analysis estimates and/or forecasts.
Source: Actuals: Census, Bureau of Labor Statistics, Federal Reserve, Mortgage Bankers Association, National Association of Realtors, OFHEO, Forecasts: Fannie Mae
Economics and Mortgage Market Analysis
                                                                                                                                                                                                                                     D                                  Percent
                                                          Q                                                                                                                                                                           ec
                                                           3-                                                                                                                                                                           -




                                                                                                                                                                                                                                                0
                                                                                                                                                                                                                                                    10
                                                                                                                                                                                                                                                          20
                                                                                                                                                                                                                                                                  30
                                                                                                                                                                                                                                                                        40
                                                                                                                                                                                                                                                                               50
                                                                                                                                                                                                                                                                                     60
                                                                                                                                                                                                                                                                                           70
                                                                                                                                                                                                                                                                                                         80
                                                                                                                                                                                                                                                                                                                90




                                                                      0%
                                                                           2%
                                                                                    4%
                                                                                                6%
                                                                                                        8%
                                                                                                                10%
                                                                                                                         12%
                                                                                                                                     14%
                                                                                                                                             16%
                                                              96                                                                                                                                                                     Ju 96
                                                                                                                                                                                                                                       n-
                                                          Q                                                                                                                                                                          D 97
                                                           2-                                                                                                                                                                         ec
                                                              97                                                                                                                                                                        -
                                                          Q                                                                                                                                                                          Ju 97
                                                           1-                                                                                                                                                                          n-
                                                              98                                                                                                                                                                     D 98
                                                                                                                                                                                                                                      ec
                                                          Q                                                                                                                                                                             -
                                                           4-                                                                                                                                                                        Ju 98
                                                                                                                                                                                                                                       n-




Source: OFHEO
                                                              98
                                                                                                                                                                                                                                     D 99
                                                          Q                                                                                                                                                                           ec
                                                                                                                                                                                                                                                                                                Total


                                                           3-                                                                                                                                                                           -
                                                              99                                                                                                                                                                     Ju 99
                                                                                                                                                                                                                                       n-
                                                          Q                                                                                                                                                                          D 00
                                                           2-                                                                                                                                                                         ec
                                                              00                                                                                                                                                                        -
                                                                                                                                                                                                                                     Ju 00
                                                          Q                                                                                                                                                                            n-
                                                           1-                                                                                                                                                                        D 01
                                                              01                                                                                                                                                                      ec
                                                          Q                                                                                                                                                                             -
                                                           4-                                                                                                                                                                        Ju 01
                                                              01                                                                                                                                                                       n-
                                                                                                                                                                                                                                     D 02
                                                          Q                                                                                                                                                                           ec
                                                                                                                                                                                                                                        -
                                                           3-                                                                                                                                                                        Ju 02
                                                              02
                                                                                                                                                                                                                                       n-
                                                          Q                                                                                                                                                                          D 03
                                                           2-                                                                                                                                                                         ec
                                                              03                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                By dollar volume




                                                                                                                                                                                                                                     Ju 03
                                                          Q                                                                                                                                                                            n-
                                                           1-                                                                                                                                                                        D 04
                                                              04



                                                                                                                                                     Year/Year Percent Change
                                                                                                                                                     OFHEO House Price Index
                                                                                                                                                                                                                                      ec
                                                          Q                                                                                                                                                                             -




                                                                                                                             Total
                                                                                                                                                                                                                                     Ju 04
                                                                                                                                                                                   Source: MBAA Weekly Mortgage Application Survey

                                                           4-                                                                                                                                                                          n-
                                                              04
                                                                                                                                                                                                                                                                                                                      Refinance Share of Loan Applications




                                                                                                                                                                                                                                     D 05
                                                          Q                                                                                                                                                                           ec
                                                           3-                                                                                                                                                                           -
                                                              05                                                                                                                                                                     Ju 05
                                                                                                                                                                                                                                       n-




                                                                                                Only
                                                          Q                                                                                                                                                                          D 06
                                                                                                                                                                                                                                      ec
                                                           2-
                                                              06                                                                                                                                                                        -0
                                                                                                                                                                                                                                           6




                                                                                                Purchase
                                                          O
                                                            ct                                                                                                                                                                        D
                                                               -




                                                                      0
                                                                           1000
                                                                                  2000
                                                                                         3000
                                                                                                 4000
                                                                                                        5000
                                                                                                               6000
                                                                                                                      7000
                                                                                                                             8000
                                                                                                                                      9000
                                                                                                                                             10000




                                                          Ap 96                                                                                                                                                                        ec
                                                                                                                                                                                                                                          -
                                                                                                                                                                                                                                                0
                                                                                                                                                                                                                                                    100
                                                                                                                                                                                                                                                           200
                                                                                                                                                                                                                                                                  300
                                                                                                                                                                                                                                                                         400
                                                                                                                                                                                                                                                                               500
                                                                                                                                                                                                                                                                                     600
                                                                                                                                                                                                                                                                                           700
                                                                                                                                                                                                                                                                                                          800
                                                                                                                                                                                                                                                                                                                900




                                                             r-9                                                                                                                                                                      Ju 96
                                                          O 7                                                                                                                                                                           n-
                                                            ct                                                                                                                                                                        D 97
                                                               -                                                                                                                                                                       ec
                                                          Ap 97
                                                             r-9                                                                                                                                                                          -
                                                                                                                                                                                                                                      Ju 97
                                                          O 8                                                                                                                                                                           n-
                                                            ct                                                                                                                                                                        D 98
                                                               -
                                                                                                                                Total




                                                                                                                                                                                                                                       ec
                                                          Ap 98                                                                                                                                                                           -
                                                             r-9                                                                                                                                                                      Ju 98
                                                          O 9                                                                                                                                                                           n-
                                                            ct
                                                               -                                                                                                                                                                      D 99
                                                                                                                                                                                                                                       ec
                                                          Ap 99                                                                                                                                                                           -
                                                             r-0                                                                                                                                                                      Ju 99
                                                          O 0                                                                                                                                                                           n-
                                                            ct
                                                               -                                                                                                                                                                      D 00
                                                                                                                                                                                                                                       ec
                                                          Ap 00                                                                                                                                                                           -
                                                             r-0                                                                                                                                                                      Ju 00
                                                          O 1                                                                                                                                                                           n-
                                                            ct
                                                               -                                                                                                                                                                      D 01
                                                                                                                                                                                                                                       ec
                                                          Ap 01                                                                                                                                                                           -
                                                             r-0                                                                                                                                                                      Ju 01
                                                          O 2                                                                                                                                                                           n-
                                                            ct
                                                               -                                                                                                                                                                      D 02
                                                                                                                                                                                                                                       ec
                                                          Ap 02                                                                                                                                                                           -
                                                             r-0                                                                                                                                                                      Ju 02
                                                          O 3                                                                                                                                                                           n-
                                                            ct
                                                               -                                                                                                                                                                      D 03
                                                                                                                                                                                                                                                                                                                        March 16, 1990 =100




                                                                                                                                                                                                                                       ec
                                                          Ap 03                                                                                                                                                                           -
                                                                                                                                                                                                                                                          Total




                                                                                                                                                        March 16, 1990 =100




                                                             r-0                                                                                                                                                                      Ju 03
                                                                                                                                                                                                                                                                                                                      Purchase Application Index




                                                          O 4                                                                                                                                                                           n-
                                                                                                                                                     Refinance Application Index




                                                                                                                                                                                                                                      D 04
                                                                                                                                                                                                                                                                                                Conventional




                                                            ct
                                                               -                                                                                                                                                                       ec
                                                          Ap 04                                                                                                                                                                           -
        Source: MBAA Weekly Mortgage Application Survey




                                                             r-0                                                                                                                                                                      Ju 04
                                                                                                                                                                                   Source: MBAA Weekly Mortgage Application Survey




                                                          O 5                                                                                                                                                                           n-
                                                            ct
                                                               -                                                                                                                                                                      D 05
                                                                                                                                                                                                                                       ec
                                                          Ap 05                                                                                                                                                                           -
                                                             r-0                                                                                                                                                                      Ju 05
                                                          O 6                                                                                                                                                                           n-
                                                            ct                                                                                                                                                                        D 06
                                                               -0                                                                                                                                                                      ec
                                                                  6                                                                                                                                                                       -0
                                                                                                                                                                                                                                            6
Opinions, analyses, estimates, forecasts and other views of Fannie Mae's
Economics & Mortgage Market Analysis (EMMA) group included in these
materials should not be construed as indicating Fannie Mae's business prospects
or expected results, and are subject to change without notice. Although the
EMMA group bases its opinions, analyses, estimates, forecasts and other views
on information it considers reliable, it does not guarantee that the information
provided in these materials is accurate, current or suitable for any particular
purpose. The analyses, opinions, estimates, forecasts and other views published
by the EMMA group represent the views of that group as of the date indicated
and do not necessarily represent the views of Fannie Mae or its management.

								
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