Public Policy and the Housing Recovery By Professor Chris Mayer THE PAUL MILSTEIN CENTER FOR REAL ESTATE
Today’s outline • Comments on Dynan, Gayer, & Plotkin • What other policies did the government pursue to stabilize housing? • Modifications for delinquent borrowers • Provide support for GSEs/FHA to provide mortgage credit – How successful was government support of mortgage credit? – Takeaways for the future
DGP: Very Nice Work • Comprehensive summary of various federal and state homebuyer assistance programs • Variety of different estimation strategies • Conclusion: small positive, but limited effect on demand and prices • Results make intuitive sense and are consistent with the findings on many other government programs to help housing
Vacancy rate for housing is falling; Many vacant units in depressed places 10 Rate 5 0 1960q1 1970q1 1980q1 1990q1 2000q1 2010q1 DATE Ownership Rental Current as of Quarter 1, 2013 Source: US Census US Residential Vacancy Rates
Mortgage-related policies had limited effectiveness • HAMP (Home Affordable Mortgage Program) was a victim of its own claims & bureaucracy – Targeted 3 to 4 million modifications – So far: 1.1 million permanent modifications (2.0 million temporary mods), but saved many foreclosures (Agarwal, et. al., 2013) – Some private lenders opted out; the latest GSE programs apply to all delinquent borrowers and do not require new paperwork – Moral hazard was much less of a problem than feared (Mayer, Morrison, & Piskorski, 2012)
Mortgage-related policies had limited effectiveness • Government support for mortgages helped, but only for the best borrowers – For most of the last 5 years, the government has financed more than 9 in 10 mortgages (Fannie, Freddie, and FHA) – HARP refinancings were almost exclusively pursued by high quality borrowers until mid-2012 – Refinancings never reached levels set in previous interest rate declines – Purchase mortgages were only available for the very best borrowers (760 FICO, 28% downpayment)
Private debt capital has disappeared; Little issuance of private MBS 800 600 Billions of Dollars 400 200 0 1996 1998 2000 2002 2004 2006 2008 2010 2012 Year Gross Non − Agency MBS Issuance by Year (Includes CMBS) Current as of April 2013, annualized Source: SIFMA
Number of first mortgages drops from 55 million to 49 million Equifax #Millions $Trillions First Mortgage Portfolio Loans & Balances 56 $9.5 55 $9.0 54 53 $8.5 52 $BALANCES $8.0 51 50 $7.5 #LOANS 49 48 $7.0 200710 200712 200802 200804 200806 200808 200810 200812 200902 200904 200906 200908 200910 200912 201002 201004 201006 201008 201010 201012 201102 201104 201106 201108 201110 201112 201202 201204 201206 201208 201210
Home purchase mortgages are at levels seen in mid 1990s Source: Mortgage Bankers Association
Even refinancing activity is well below previous peaks Source: Mortgage Bankers Association
Origination Credit Scores are at unprecedented highs Source: Lender Processing Services
New lending has returned for Autos, CC’s Equifax Equifax $Billions $Billions Home Equity Origination Credit Line Year-To-Date Bankcard Origination Credit Limit Year-To-Date $300 $300 New Bankcard Credit New Home Equity $239.4 $250 $250 $202.0 $215.5 $196.8 $195.9 $200 $200 $150 $150 $133.7 $117.9 $93.8 $97.2 $100 $100 $77.7 $59.1 $51.7 $46.8 $47.1 $50 $50 $0 $0 2006 2007 2008 2009 2010 2011 2012 2006 2007 2008 2009 2010 2011 2012 Equifax Equifax $Billions $Billions Auto Finance Origination Loan Amount Year-To-Date Auto Bank Origination Loan Amount Year-To-Date $200 New Auto Finance $200 New Bank Auto Loans $172.4 $180 $180 $160 $151.7 $146.7 $160 $136.3 $133.3 $140 $128.4 $140 $125.1 $127.7 $121.8 $120.0 $120 $120 $109.3 $107.5 $106.9 $100 $100 $82.3 $80 $80 $60 $60 $40 $40 $20 $20 $0 $0 2006 2007 2008 2009 2010 2011 2012 2006 2007 2008 2009 2010 2011 2012 Source: Equifax Credit Trends
Subprime Bankcard (and Auto) lending has returned (FICO<660) Equifax #Millions ons Number of Bankcard Originations: Sub Prime 3.0 2.5 2.0 ed 1.5 to ¡last ¡year’s ¡originations. 1.0 0.5 0.0 J06 J07 J08 J09 J10 J11 J12
Good news: Household formation is below trend…but will catch up Thousands Trendline: March 2001 to December 2007 Source: Census Bureau
Conclusion for housing policy • Policy has not stabilized US housing nearly as much as it could have • Future government actions should focus on re- establish reasonable lending standards and ground rules • Need private capital, but in a sustainable way with countercyclical credit support • Rental market for single-family homes is growing, but is not a long-run solution
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