Magazine article Journal of Commercial Lending

The Residential Mortgage Market

Magazine article Journal of Commercial Lending

The Residential Mortgage Market

Article excerpt

Many consumer lenders and consumer portfolio managers closely follow the changes in the direction of delinquency and charge-off statistics for residential lending. Because of the deductibility of consumer loan interest, many consumers now use the equity in their homes to finance additional purchases, such as education and automobiles. Since a home is one of the most significant assets many individuals own, it is usually the bill that consumers make sure gets paid monthly. Downticks in delinquencies and charge-offs may cause jubilation among lenders, while up-ticks produce detailed analysis of economic data to try to predict if the economy is heading into the next recession.

One quarterly survey that provides an indication of the strength of the overall real estate market is the Survey of Real Estate Trends from the Federal Deposit Insurance Corporation (FDIC). For the survey, the FDIC interviews bank examiners and asset managers experienced in evaluating real estate loan portfolios or marketing real estate assets. In the July 1995 survey, respondents indicated a renewed strength in real estate markets from April through July, which was led by a surge in reports of improving housing market conditions. This positive assessment suggests that many local housing markets are again posting gains, following several quarters of diminishing improvement. Examiners reported gains for both new construction and the existing home markets.

RMA Data

RMA's monthly Consumer Loan Statistics (CLS) Survey provides participants with relevant and timely consumer lending statistical information, which is used as a risk management tool by the participating institutions. Currently, 22 banks participate in the survey, including 8 of the top 10 banks in consumer lending. Each participant receives customized reports as well as a composite group report detailing delinquency and charge-off information.

An analysis of trends in data from the CLS Survey from January to August 1995 shows outstanding net mortgage loan balances increasing by 8.3%, from approximately $137 billion to $148 billion. The total delinquency percentage (defined as two payments or more missed, thus excluding any account which is 1-29 days past due) stands at 1.93% for August 1995. (See Figure 1.) The percentage has varied from a low of 1. …

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