Magazine article Mortgage Banking

Michael Youngblood-FBR Investment Management Inc

Magazine article Mortgage Banking

Michael Youngblood-FBR Investment Management Inc

Article excerpt

As portfolio manager and managing director of research at Arlington, Virginia-based FBR Investment Management Inc., Michael Youngblood directs research on the fundamental and relative value of non-agency residential mortgage-backed securities (RMBS) in the context of the 361 U.S. metropolitan housing markets.

Youngblood has more than 20 years of experience in investment, commercial and mortgage banking, and is an expert in RMBS and commercial mortgage-backed securities (CMBS).


The author of many published professional and academic reports and papers, Youngblood pioneered the analysis of non-agency, interest-only and principal-only, adjustable-rate, and Sterling-denominated RMBS in the 1980s.

Prior to joining FBR, Youngblood developed mortgage research units at Banc of America Securities LLC, Charlotte, North Carolina, and Chase Securities Inc., New York. He also served as director of residential mortgage research and product manager at Salomon Brothers Inc., New York, working for Henry Kaufman and Lewis Ranieri.

Youngblood holds a doctorate from the University of London, a master's degree from the University of Pennsylvania, Philadelphia, and a bachelor's degree from the University of Texas at Austin.

He is a recipient of a Marshall Scholarship and holds membership in the Phi Beta Kappa honor society.

Mortgage Banking recently interviewed Youngblood about the outlook for the secondary mortgage market in 2007 and other housing trends.

Q: How would you summarize the current state of the subprime mortgage market, and what is your outlook for subprime for the rest of 2007 and into 2008?

A: Well, the subprime market is in a tumultuous period of transition from weaker underwriting practices generally in 2006 to more rigorous underwriting practices in 2007.

As the industry moves to more rigorous underwriting standards, absent a material change in mortgage and other interest rates, we are likely to see a sharp decline in origination volume.

Q: There is a prevailing view that the Federal Reserve will likely hold short-term interest rates steady in the months to come. Do you share that view, or do you see further tightening or loosening by the Fed in store in 2007?

A: I do not believe that the Federal Reserve will ease in the first half of 2007. However, if we continue to see core inflation--particularly PCE [personal consumption expenditures] inflation--within the Fed's tolerance span of 1 [percent] to 2 percent, it is likely that the Fed will begin to ease in the second half of the year and we could see federal funds as much as 50 basis points below their current level.

Q: This was just announced today as we conduct this interview, but Freddie Mac has announced it will cease buying subprime mortgages that have a high likelihood of excessive payment shock and possible foreclosure. Freddie will also implement stricter subprime lending standards, including a recommendation that lenders collect escrow accounts for borrowers' taxes and insurance payments. Freddie will also impose limits on low-documentation loans in order to ensure borrowers can afford to pay for their homes. What is your reaction to Freddie's announcement, and how do you see it impacting the broader market?

A: I think Freddie's announcement will have an entirely salubrious impact on subprime mortgage lending. This was anticipated on Dec. 13, when OFHEO [the Office of Federal Housing Enterprise Oversight] directed Freddie Mac and Fannie Mae to follow the banking regulators' nontraditional mortgage risk guidance [the Interagency Guidance on Nontraditional Mortgage Product Risks]. At the time, we felt this would lead to significantly lower origination volume in 2007.

We think the guidance is salubrious because it will provide a template for subprime lenders if they seek to enhance their own underwriting practices. …

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