Magazine article American Banker

Shrinking Housing Debt Nothing to Fear?

Magazine article American Banker

Shrinking Housing Debt Nothing to Fear?

Article excerpt

Byline: Paul Muolo

A funny thing is happening to the market value of mortgage servicing rights: as this volatile asset class continues to wane in price, there's now less of it out there in the worldaa lot less compared to the peak of two years ago.

And the decline is happening at a time when more nontraditional players a REITs, hedge funds and even Warren Buffett a are pondering big moves into MSR investing.

It's also occurring at a time when mortgage bankers are funding the best quality loans in decades. (Usually, when there's less of something that people want it goes up in value, but the mortgage crisis has turned that notion on its head.)

U.S. consumers owed $8.995 trillion on their residential loans at the end of March a the lowest debt figure recorded in almost five years, according to new figures compiled by National Mortgage News and the Quarterly Data Report.

The peak of the market occurred in the fourth quarter of 2009 when consumers owed $10.138 trillion on their homes. Since that time, outstanding loan balances nationwide have declined steadily each quarter, this publication found.

The reason for the reduction in loan balances is not surprising: foreclosed homes result in loans being removed from the loan tally, plus some consumers that have the ability to refinance are engaging in "cash-in" refis where they bring money to the closing table to reduce their payments even further.

According to figures compiled by Freddie Mac, roughly 70% of consumers who are refinancing either keep their loan balance the same or reduce it. …

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