Mapping a Path to ProfitabilityPreparing for the future of the U.S. residential mortgage market |
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The U.S. residential mortgage industry is undergoing one of the most wrenching transformations in decades. Record volumes of delinquencies and foreclosures, intense regulatory scrutiny, and legal woes on many fronts continue to hobble the industry. To complicate matters, the global economy is stuck in a low-growth environment, and there are few signs that the housing market will experience a quick recovery anytime soon. The sheer scale and complexity of the challenges facing mortgage lenders, servicers and investors is simply unprecedented. This pain is being felt globally across the phases of the mortgage
life cycle:
- Origination: New loan volumes have declined dramatically and the near-term future does not seem that promising either. The Mortgage Bankers Association (MBA) expects originations to shrink to $992 billion in 2012, from $1.26 trillion in 2011, a decline of 21 percent.
- Servicing: The value of mortgage servicing rights (MSRs) for the top eight servicers has declined from $68 billion in the fourth quarter in 2009 to $37 billion in the fourth quarter of 2011, a drop of 46 percent. Furthermore, the costs of servicing have gone up, compounding the economic challenges facing the servicing industry. Adding to this pressure are the newly proposed national servicing standards.
- Securitization: The private label securitization market has essentially dried up due to lack of investor confidence. This has forced the U.S. government to provide the required liquidity—the Government-Sponsored Entities (GSEs) (Fannie Mae, Freddie Mac, and Ginnie Mae) now account for more than 95 percent of all mortgage-backed securities (MBS) issued in the U.S.
- Default management: Although delinquencies have fallen from their January 2010 high of 10.97 percent, they are still almost twice the historical norms, and foreclosures are currently eight times the historical norms. Adding to the foreclosure backlog, several of the top mortgage servicers halted foreclosure proceedings to address deficiencies identified in consent orders issued by federal banking regulators
There are multiple levers that could be used to accelerate the path to revival and profitability in the future. This report presents certain levers banks and services may deploy to attain longer-term success.
Mapping a path to profitability: Preparing for the future of the U.S. residential mortgage market
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