11© 2011 Fannie Mae. Trademarks of Fannie Mae.

The Economy Drags Housing UpwardDoug Duncan

Chief Economist, Fannie Mae

August 9, 2015

2

Disclaimer

Opinions, analyses, estimates, forecasts, and other views of Fannie Mae's Economic & Strategic Research (ESR) group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR group bases its opinions, analyses, estimates, forecasts, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current, or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, and other views published by the ESR group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.

3

Job Growth For Younger Workers Outpaces Older Cohorts

Source: Bureau of Labor Statistics

'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14-6%

-4%

-2%

0%

2%

4%

6%

8%

Year-over-Year Change in Employment (NSA)

25-34 35-64

4

-2000%

-1000%

0%

1000%

2000%

3000%

4000%

Difference Between % Increase and % Decrease 6 Months Hence (Left Axis)

Income Growth Expectations Continue to Improve

Source: The Conference Board, NBER

1991-1996

Avg.=9.9

1982-1987

Avg.=18.7

2001-2006

Avg.=9.7

2009-2014

Avg.= -1.64

5

Household Formation Shows Signs of Improvement

Source: Fannie Mae Economic & Strategic Research ForecastSource: Census Bureau

'00 '00 '01 '01 '02 '02 '03 '03 '04 '04 '05 '05 '06 '06 '07 '07 '08 '08 '09 '09 '10 '10 '11 '11 '12 '12 '13 '13 '14 '14 '150

500

1,000

1,500

2,000

2,500

Total Number of Households, Break-adjusted (Thous) Change - Year to Year

6

Multifamily Housing Starts Reach 27-Year High

Source: Census Bureau

SAAR, Thousands of Units

512

524

50

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

0

100

200

300

400

500

600

700

800

900

1,000

Single-Family Housing Starts (SAAR, Thousands of Units, Left Axis)Multifamily Housing Starts (SAAR, Thousands of Units, Right Axis)

7

Existing Home Sales Reach 8-Year High, While New Home Sales Fall Short

Source: National Association of REALTORS®, Census Bureau

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '150

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

0

200

400

600

800

1,000

1,200

1,400

1,600

NAR Total Existing Home Sales, United States (SAAR, Thous, Left Axis) New 1-Family Houses Sold: United States (SAAR, Thous, Right Axis)

8

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

FHFA House Price Index (Purchase Only, United States)

CoreLogic National House Price Index

S&P/Case-Shiller Home Price Index: Composite 20

Source: S&P/Case-Shiller, CoreLogic, Federal Housing Finance Agency

Home Price Appreciation Accelerates

Year-over-Year % Change

9

Continuous Tight Supply May Further Support Home Price Growth

Source: CoreLogic, National Association of REALTORS®

'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15-2500%

-2000%

-1500%

-1000%

-500%

0%

500%

1000%

1500%

2000%

2500% 2

3

4

5

6

7

8

9

10

11

12

CoreLogic National House Price Index: 12 Month Change (NSA, %) Months' Supply of SF Existing Homes (4-Month Lead, Inverted, Right Axis)

10Source: Fannie Mae National Housing Survey™

Jun-

10

Aug-1

0

Oct-10

Dec-1

0

Feb-1

1

Apr-1

1

Jun-

11

Aug-1

1

Oct-11

Dec-1

1

Feb-1

2

Apr-1

2

Jun-

12

Aug-1

2

Oct-12

Dec-1

2

Feb-1

3

Apr-1

3

Jun-

13

Aug-1

3

Oct-13

Dec-1

3

Feb-1

4

Apr-1

4

Jun-

14

Aug-1

4

Oct-14

Dec-1

4

Feb-1

5

Apr-1

5

Jun-

150

10

20

30

40

50

60

70

80

Respondents Who Say it is a Good Time to Buy (%)Respondents Who Say it is a Good Time to Sell (%)

Consumers Exhibit a More Balanced View of the Housing Market

11Source: Fannie Mae Economic & Strategic Research ForecastSource: Census Bureau

'70 '75 '80 '85 '90 '95 '00 '05 '10 '150.0%

50.0%

100.0%

150.0%

200.0%

250.0%

300.0%

0%

200%

400%

600%

800%

1000%

1200%

Homeowner Vacancy Rate (%, Left Axis)

Rental Vacancy Rate (%, Right Axis)

Vacancy Rates Trend Lower

12

Homeownership Rate Continues to Decline as the Market Remains Dominated by Renter Households

'91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15-2,000

-1,500

-1,000

-500

0

500

1,000

1,500

2,000

2,500

Total Renter-Occupied Housing UnitsTotal Owner-Occupied Housing Units

Change in Units from Prior Year, Thousands of Units

'91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '1560

61

62

63

64

65

66

67

68

69

70

Homeownership Rate, %

Source: Census Bureau

13

Lenders Plan to Increase Their Marketing Investments Into First-Time Homebuyers and Move-Up Homebuyers

[If YES, firm develops or implements Direct-to-Consumer marketing programs] Listed below are some possible mortgage consumer segments. For each consumer segment, please indicate whether your firm plans to make marketing investments in 2015 to increase your firm’s penetration into

the consumer segment as part of your firm’s 2015 mortgage origination strategy. (Q4 2014)

In addition, larger institutions are more likely to invest in affluent consumers and mid-sized and smaller lenders are more likely to invest in lower-then-median income consumers.

L/M/S - Denote a % is significantly higher than the annual loan origination volume group that the letter represents at the 95% confidence levelPlease note that percentages are based on the number of financial institutions that gave responses other than “Not Applicable.” Percentages may add to under or over 100% due to rounding.

Source: Fannie Mae Mortgage Lender Sentiment Survey™ – Q4 2014

14

The Share of Lenders Reporting Increased Demand for GSE Eligible Loans Over the Prior Three Months Has Been in a Steady Climb Since Q4 2014

UpThe sameDown

Q: Over the past three months, apart from normal seasonal variation, did your firm’s consumer demand for single-family purchase mortgages go up, go down, or stay the same? “Up” = Went up significantly + Went up somewhat, “Down” = Went down significantly + Went down somewhatQ: Over the next three months, apart from normal seasonal variation, do you expect your firm’s consumer demand for single-family purchase mortgages to go up, go down, or stay the same? “Up” = Go up significantly + Go up somewhat, “Down” = Go down significantly + Go down somewhat

Past 3 Months

Next 3 Months

Mid-sizedInstitutions

Larger Institutions

SmallerInstitutions

Total

* Denotes a statistically significant change since Q1 2015

Q1 2014

Q2 2014

Q32014

Q42014

Q1 2015

Q22015

33%

56% 53%42%

52%

77%*

20%

24%31%

38% 36% 16%*

47%

19% 17% 20%11% 6%

Q1 2014

Q2 2014

Q3 2014

Q42014

Q12015

Q22015

59%54%

21%

17%

71%

65%

35%43%

66% 62%

26% 30%

6% 4% 13%

22%

3%5%

Q1 2014

Q2 2014

Q32014

Q42014

Q1 2015

Q22015

34%

69%59%

37%

51%

79%*

13%

20% 24%

42%32%

12%*

52%

11% 18% 21% 17% 9%

Q1 2014

Q2 2014

Q3 2014

Q4 2014

Q1 2015

Q22015

63% 57%

15%

17%

69%

65%

35% 38%

71%58%

27%30%

2% 5%15%

25%

5% 4%

Q1 2014

Q2 2014

Q3 2014

Q42014

Q1 2015

Q22015

52% 51%

25% 20%

72%

64%

40% 43%

62% 62%

25% 32%

8% 6%

13%18% 3% 4%

Q1 2014

Q2 2014

Q32014

Q42014

Q1 2015

Q22015

38%

48% 51%46%

62%

81%*

23% 24%

31%

35%

31%

15%*

39%28%

18% 19%7%

4%

Q1 2014

Q2 2014

Q32014

Q42014

Q1 2015

Q22015

27%

53%48%

42% 44%

73%*

24%

29%37% 38%

44% 22%*

48%

18% 15%21%

12%5%

Q1 2014

Q2 2014

Q32014

Q42014

Q1 2015

Q22015

63% 53%

23%

13%

73%64%

30%

47%

66% 64%

22% 27%

7%0% 12%

22%

0%8%

Purchase Mortgage Demand: GSE Eligible

Source: Fannie Mae Mortgage Lender Sentiment Survey™ – Q2 2015

15

Reported Credit Tightening for GSE-Eligible Loans Continues to Trend Down Gradually Each Quarter

Source: Fannie Mae Mortgage Lender Sentiment Survey™ – Q2 2015

Credit Standards: GSE Eligible

Past 3 Months

Next 3 Months

Mid-sizedInstitutions

Larger Institutions

SmallerInstitutions

Total

Q1 2014

Q2 2014

Q3 2014

Q42014

Q12015

Q2 2015

25%

11%10% 12% 12%

9%

66%

89% 86% 84% 83% 89%

9%1%

4% 4% 5%2%

Q1 2014

Q2 2014

Q3 2014

Q42014

Q1 2015

Q2 2015

11%

9% 11% 11%

17%11%

57%66% 69%

78% 77%85%

32%25%

20%12%

6% 3%

Q1 2014

Q2 2014

Q3 2014

Q42014

Q12015

Q2 2015

13%

11% 12% 12%

16% 12%

59%70% 70%

75% 77%82%

28%20% 18%

13%7% 6%

Q1 2014

Q2 2014

Q3 2014

Q42014

Q12015

Q2 2015

12% 7% 6% 9% 12%7%

76%

86% 86% 85% 83%89%

13% 7% 8%6% 5%

4%

Q1 2014

Q2 2014

Q3 2014

Q42014

Q12015

Q2 2015

26% 19% 19% 19% 21%

9%

62%69% 66%

71% 74% 86%

12%

12% 15% 9% 5% 5%

Q1 2014

Q2 2014

Q3 2014

Q42014

Q12015

Q2 2015

1% 3% 4% 6%11%

16%

59%

74% 75% 75% 79% 75%

40%

22% 20% 19%

10% 9%

Q1 2014

Q2 2014

Q3 2014

Q42014

Q12015

Q2 2015

3%2% 2%

10%

11%7%

75%88% 84% 79% 84% 87%

22% 10% 13%12%

4%7%

Q1 2014

Q2 2014

Q3 2014

Q42014

Q12015

Q2 2015

7%8%

6%5%

13%7%

86% 81%87% 91%

81%91%

7%11%

7% 4% 7%

2%

EaseRemain UnchangedTighten

Q: Over the past three months, how did your firm’s credit standards for approving consumer applications for mortgage loans change (across both purchase mortgages and refinance mortgages)? “Ease” = Eased considerably + Eased somewhat, “Tighten” = Tightened somewhat + Tightened considerably Q: Over the next three months, how do you expect your firm’s credit standards for approving applications from individuals for mortgage loans to change (across purchase mortgages and refinance mortgages)? “Ease” = Ease considerably + Ease somewhat, “Tighten” = Tighten somewhat + Tighten considerably

16

[IF deliver loans to the GSEs or Ginnie Mae] You mentioned that your firm securitizes or sells mortgage loans with/to Fannie Mae, Freddie Mac, or Ginnie Mae. Does your firm apply credit overlays* that are more stringent than what Fannie Mae, Freddie Mac, or Ginnie Mae require? Showing Total (N=185)

Applying Credit Overlays Among Lenders Delivering to the GSEs or Ginnie Mae

A Limited Number of Lenders Reported That They Apply Overlays When Delivering Loans to the GSEs or Ginnie Mae

41%

59%

Yes No

Respondents saw the following definition when they hovered over “overlays” in the question text: Lenders’ own underwriting guidelines that exceed requirements in the guides published by the investor to which the loan is being sold. Lender overlays can address various borrower and property attributes, including, but not limited to, credit score, debt-to-income ratio, amount of assets and the type of assets, minimum down payment, property type, and other attributes.

IF YESN=66

47%

21%

7% 7% 6% 3%8%

[IF apply credit overlays] What type of overlay does your firm apply most often? Showing Total (N=66)

Higher credit scores

Additional documentation

Lower LTV ratio Restrictions on property type

Lower DTI ratio Limitations on sources of funds

permitted for down payment

and closing costs

Other

Results across subgroups can be found on pp. 28-29

Due to small sample sizes, results should be interpreted with caution

Source: Fannie Mae Mortgage Lender Sentiment Survey™ – Q2 2015

17

2011 2014

Small Medium Large Small Medium Large

580

600

620

640

660

680

700

720

740

760

780

800

820

840

860

Weighted Fico (PMM)

758.9

747.3

While There is Minimal Diversion From the Median for All Lender Sizes, Smaller Institutions Demonstrate Larger Spread of FICO Scores

Number of Lenders696 164 121

Number of Lenders830 201 112

Lower Quartile

(Q1)

Upper Quartile

(Q3)

Median

Outlier

Source: Marketrac, HMDA, Freddie Mac, Fannie Mae

Max Value

Min Value

*2014 Data through 2014 Q3“Other” Institution Type includes private equity firms and insurance companies (i.e. Fortress Investment, Walter Investment, Ocwen Financial, Metlife, Inc.)Note: FICO weighted by loan UPB**Q1 – (Q3-Q1)*1.5 < Outlier < Q3 + (Q3-Q1)*1.5

18

Real Interest Rates Have Trended Lower for Over Three Decades

Source: Federal Reserve Board, Freddie Mac, Bloomberg

5-400%

-200%

0%

200%

400%

600%

800%

1000%

-1.13529411764706

4.13%

2.13%

0.83%

Inflation Adjusted 1-Year U.S. Treasury Yield

19

The Fed’s Balance Sheet Remains at Historic High, Though Its Duration is Shortening

Source: Federal Reserve Board

'08 '09 '10 '11 '12 '13 '14 '15$0.0

$500,000.0

$1,000,000.0

$1,500,000.0

$2,000,000.0

$2,500,000.0

$3,000,000.0

$3,500,000.0

$4,000,000.0

$4,500,000.0

$5,000,000.0

Treasury securities Agency MBS Other assets

20

Mortgage Securitization is Dominated by GSEs and Ginnie Mae. However, the Share of Credit Risk Held by the Private Sector is Increasing

Source: Federal Reserve, Fannie Mae, Freddie Mac, FDIC, Treasury & FHLBs

'01

'01

'01

'01

'02

'02

'02

'02

'03

'03

'03

'03

'04

'04

'04

'04

'05

'05

'05

'05

'06

'06

'06

'06

'07

'07

'07

'07

'08

'08

'08

'08

'09

'09

'09

'09

'10

'10

'10

'10

'11

'11

'11

'11

'12

'12

'12

'12

'13

'13

'13

'13

'14

'14

'14

'14

'15

0%

20%

40%

60%

80%

100%Mortgage-Related Securities (MRS) Share

Fannie Mae Freddie Mac Ginnie MaePrivate Label Security

*Preliminary

'07 '08 '09 '10 '11 '12 '13 '14 '150%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%Credit Risk Share of Originations

PortfolioShared Risk

*

21

Douglas G. Duncan is Fannie Mae’s Senior Vice President and Chief Economist. He is responsible for managing Fannie Mae’s Economic & Strategic Research Group and oversees corporate strategy. In this leadership role, Duncan provides all economic, housing, and mortgage market forecasts and analyses, and serves as the company’s thought leader and spokesperson on economic and mortgage market issues.

Prior to joining Fannie Mae, Duncan was Senior Vice President and Chief Economist at the Mortgage Bankers Association. His experience also includes service as a LEGIS Fellow and staff member with the Committee on Banking, Finance, and Urban Affairs for Congressman Bill McCollum in the U.S. House of Representatives, and work on the Financial Institutions Project at the U.S. Department of Agriculture. He has been elected to the Board of Directors for the National Association of Business Economists, is a member of the American Economics Association and the American Real Estate and Urban Economics Association, and is past president of the Housing Statistics Users Group.

Named one of Bloomberg / BusinessWeek’s 50 Most Powerful People in Real Estate and one of Inman News’ 100 Most Influential Real Estate Leaders for 2013, Duncan is a frequent speaker on national and state economic, housing, and mortgage market conditions.

Duncan received his Ph. D. in Agricultural Economics from Texas A&M University and his B.S. and M.S. in Agricultural Economics from North Dakota State University.

Speaker Biography

22

Contact Informationfanniemae.com/portal/research-and-analysis/

Doug Duncan, Senior Vice President & Chief Economist

Fannie Mae

3900 Wisconsin Avenue, NW

Mail Stop 1H-2N/01

Washington, DC  20016

 

(o) 202-752-0160

(c) 202-409-5913

(fax) 202-752-4441

 douglas_g_duncan@fanniemae.com