Often times there is a tremendous amount of speculation in the mortgage industry regarding supply and demand, the foundation to any free market. While mortgage activity remains a sticking point for the economic and housing outlook as we move through 2023, recent data indicates that lending standards are easing, and supply is increasing in the mortgage market.
Many research and economic departments focus on residential mortgage debt, of which new issuance has fallen to low levels while the inventory of housing available for sale continues to remain sluggish. If you look at institutional investment, mortgages as a percent of total assets have fallen due to bank-level concerns, summed up by “Do we want to own MBS or jumbo loans in our portfolio?” This brings us to question the fundamentals of our market, specifically, what is holding down stronger growth in the mortgage market?
When we ask, “Who is the primary driver of supply?” the government-sponsored entities (GSEs) are a good place to start. GSEs have made up the majority of growth in the mortgage lending market, and Fannie Mae, Freddie Mac, and (indirectly) Ginnie Mae, have surged in mortgage originations compared to private institutions. Mortgages originations from private entities, like insurance corporations and affiliate institutions, have fallen to historical lows, mainly as a function of their inherent risk premiums; it’s hard to compete with the GSE’s daily rates. And yet jumbo loans, for example, don’t have fees to guarantee investors of their performance, and may actually offer more attractive rates.