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The Institutional Risk Analyst

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Record Losses for Mortgage Banks Presage Tough Year Ahead

November 19, 2022 | Premium Service | The Institutional Risk Analyst has published a new report, "Outlook for U.S. Residential Mortgage Finance 2023," which is available for subscribers to our Premium Service. Non-subscribers may also buy a stand alone copy of the report in our new online store.

In the latest WGA report on the housing market, we discuss trends including:

  • Home Prices: Home prices are expected to fall by double digits in 2023 with the largest decline in prices above the 300k average loan size. High-priced assets are already experiencing compression

  • Lending: Bond market indicators suggest that the US could see double digit mortgage rates in Q1 2023, with the premium contract for Fannie Mae MBS in December at 6.5%

  • Risk: Banks and REITs face mark-to-market losses on loans and mortgage backed securities (MBS) that could be far larger than the visible mark-to-market (AOCI) losses we have discussed in past issues.

  • Liquidity: Falling mortgage lending volumes and record low issuer profitability data from the Mortgage Bankers Association suggests rough waters ahead for issuers.

  • Default: Signs of rising cash advances on delinquent loans in the government loan market suggest that 2023 may be the return of the distressed loan trade as a strategy for institutional investors.

Subscribers to the Premium Service login to access the report.

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