Legal Seminar, Chicago, IL

STATE OF THE MARKET MORTGAGE ORIGINATION PROJECTIONS

With the drop in interest rates over the past fewmonths, Fannie Mae, Freddie Mac and the MBA estimate 2019 volume to be between $1.7-1.8 trillion, which is higher than the $1.64 trillion in 2018. This increased origination estimate follows drops in origination volumes, due to drops in refinancing activity, over the past few years: 2018 was down from $1.76-$1.83 trillion in 2017, and 2017 was down from $1.89-2.05 trillion in 2016. Total Originations and Refinance Shares Originations ($ billions) Refi Share (percent)

Total, FNMA estimate

Total, FHLMC estimate

Total, MBA estimate

FNMA estimate

FHLMC estimate

MBA estimate

Period

2018 Q1 2018 Q2 2018 Q3 2018 Q4 2019 Q1 2019 Q2 2019 Q3 2019 Q4

368 476 429 365 326 495 459 401

377 440 435 384 355 511 489 419

342 452 457 392 325 501 515 396

38 27 26 27 33 30 28 28 47 49 36 29 29 26

40 29 25 26 39 33 31 30 45 47 37 30 33 28

37 26 24 27 30 29 28 24 46 49 35 28 28 24

2015 2016 2017 2018 2019 2020

1730 2052 1826 1637 1680 1653

1750 2125 1807 1636 1774 1715

1679 1891 1760 1643 1,737 1683

Sources : FannieMae, Freddie Mac,Mortgage Bankers Association and Urban Institute. Note: Shaded boxes indicate forecasted figures. All figures are estimates for total single-family market. Regarding interest rates, the yearly averages for 2015, 2016, 2017 and 2018were 3.9, 3.8, 4.0 and 4.6 percent. For 2019, the respective projections for Fannie, Freddie, and MBA are 4.0, 4.1, and 4.0 percent. Originator Profitability and Unmeasured Costs In May 2019, Originator Profitability and Unmeasured Costs (OPUC) stood at $1.66 per $100 loan, which is near the lower end of the range for the past 10 years, a decline from April 2019, but still up a bit over the final months of 2018. OPUC, formulated and calculated by the Federal Reserve Bank of New York, is a good relative measure of originator profitability. OPUC uses the sales price of a mortgage in the secondary market (less par) and adds two sources of profitability; retained servicing (both base and excess servicing, net of g-fees), and points paid by the borrower. OPUC is generally high when interest rates are low, as originators are capacity constrained due to refinance demand and have no incentive to reduce rates. Conversely, when interest rates are higher and refi activity low, competition forces originators to lower rates, driving profitability down.

0 1 2 3 4 5 6 Dollars per $100 loan

1.66

19

Sources: Federal Reserve Bank of NewYork, updated monthly and available at this link: http://www.ny.frb.org/research/epr/2013/1113fust.html and Urban Institute. Note: OPUC is a is a monthly (4-week moving) average as discussed in Fuster et al. (2013) .