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Mortgage Financing Sector, 2007

U.S. Market Overview

The U.S. mortgage finance sector is competitive and plays a significant role in supporting the growth of the U.S. housing industry and growth of overall economic activity. The mortgage finance industry includes: primary lending sector, where mortgages are originated and funds are loaned to borrowers by mortgage companies, savings and loans, commercial banks, credit unions, and state and local housing finance agencies; the secondary market, where investors buy mortgages from primary lenders and either hold these mortgages in their own portfolios or package them into mortgage‑backed securities for resale to investors, such as pension funds, insurance companies, securities dealers, and other financial institutions; and a range of specialized service providers including appraisal, brokerage, servicing, titling, mortgage insurance, risk management, credit analysis, rating, property management, development and consulting firms. These services cover financing for individual homes, multifamily units, and commercial real estate, and provide a diverse set of opportunities for existing financial institutions and new entrants.

With some differences across the nation, the sector as a whole has experienced strong growth over the last five years, increasing 13.6 percent over 2004 and a 59 percent increase since the end of 2000 (U.S. Federal Reserve). According to the World Bank, compared to other developed and developing countries, the U.S. mortgage market is particularly deep and competitive, with housing debt equal to 65 percent of GDP in 2004. (Comparable figures for the EU-15, Canada, Mexico, India, and Brazil are 45 percent, 40 percent, 11 percent, 5 percent and 6 percent, respectively.)

Based on continuing demand for real estate reflecting the longer-term demographic and geographic shifts underway, demand for commercial and residential mortgages should continue to rise over the medium to longer term. Experience also shows increased importance of nearer-term cyclical forces. Demand for mortgages will very greatly with changes in employment, interest rates, and underlying housing conditions. In the residential market, recent product innovations in the subprime market have presented opportunities and challenges for financial institutions that develop new products for this relatively untested market.

The overall U.S. mortgage finance market and its ability to innovate to provide private solutions to finance mortgages remains a leading standard bearer.