某案例库TheAgenciesImpactontheMortgageMarket(601385)课件

1、某案例库TheAgenciesImpactontheMortgageMarket(601385)某案例库TheAgenciesImpactontheMort2NY-262416.121/980625YrmejHR14NY-262416.121/980625YrmejHR1StructureConductPerformanceEconomics of supply Limited secondary market for mortgages due to Limited demand from institutional investors Difficulties in trading mor

2、tgages due to nonstandardized underwriting Small secondary market consisted of onetime bilateral transactions (e.g., each deal negotiated on an individual basis) rather than ongoing trading of liquid assets Lenders, usually thrifts, historically required to fund mortgages with deposits taken from th

3、e same region, resulting in restricted capital flows across regionsBusiness system economicsBusiness system tightly bundled with players participating in originating, holding, and servicing mortgagesBarriers to entry High barriers to entry due to High capital requirements for portfolio lending Need

4、for proprietary distribution network (e.g., branch network) and servicing infrastructureCompetitive behavior Thrifts dominant in mortgage lending as they have access to regional deposits, originations (through their branches), and servicing capabilities Wholesale channel (e.g., brokers, corresponden

5、ts) largely undeveloped due to illiquid secondary marketCapacityIndustrys total capacity rigid due to high barriers to entry Frequent regional capacity shortages in high capital demand areas due to immobility of deposit capitalMarketing High variations in pricing across regions due to imbalances in

6、regional demand and supply of fundsVolume Low origination volumes $100-200 billionProfitabilityROEs often over 25% depending on rate environmentPRE-AGENCY MORTGAGE MARKETIn the mortgage market, the industry has been fundamentally restructured by the agencies with significant profit impact. Before th

7、e agencies were created the mortgage market was highly integrated and enjoyed strong profits.MORTGAGE MARKET PRE-FANNIE MAE/FREDDIE MAC Traditional structure 1950s-early 1970s3NY-262416.121/980625YrmejHR1StructureConductPerformanceEcoIMPACT OF AGENCIES ON MORTGAGE MARKETOverviewThe creation of the a

8、gencies restructured the mortgage industry by driving securitization growth and creating a highly liquid secondary market . . .Source:Mortgage Market Statistical Annual 1990, 1991 and 1997; Inside MBS and ABSOriginationsSecuritizationsCAGRPercentOriginations11.3Securitizations12.9External shocksPRIM

9、ARY VS. SECONDARY MARKET GROWTH $ BillionsU.S. Government creates Freddie Mac and permits Fannie Mae to purchase conventional mortgages in early 1970s Fannie Mae and Freddie Mac act as credit guarantors on conforming mortgages and have become the bridge between mortgage originators and capital marke

10、ts1983858687888990919293949596844NY-262416.121/980625YrmejHR1IMPACT OF AGENCIES ON MORTGAGE. . . driving significant originations growth that was largely captured by the agencies.AGENCY SECURITIZED SHARE OF MORTGAGE ORIGINATIONSPercent, $ billionsSource:The Mortgage Market Statistical Annuals for 19

11、90, 1991 and 1997100% = 2042904995074464534585628941,0207696368081984Unsecuritized198419841984198419841984198419841984198419841984Private securitizationAgency* securitization5NY-262416.121/980625YrmejHR1. . . driving significant origThe impact of this change has been to unbundle the industry busines

12、s system by reducing the barriers to entry and making the economics of the business transparent. As a result of this unbundling and its influence on making competitive dynamics for lenders more challenging, overall profitability for most players has been reduced.MORTGAGE MARKET IMPACT OF FANNIE MAE

13、AND FREDDIE MACCurrent structure late 1970s-1990sEconomics of supply Liquidity of secondary market improves dramatically due to Increased capital from institutional investors who are attracted to lower-risk agency securitizations with credit guarantees Standardized underwriting that allows individua

14、l mortgages to be traded among institutions and across markets as standardized commodities Reduced cost of capital as Fannie Mae uses its credit guarantee to reduce risk and, therefore, the required return for mortgagesBarriers to entryLiquid secondary market significantly reduces high-balance-sheet

15、 capital requirements for originators allowing origination only players Emergence of third-party servicing market eliminates the need for originators to develop servicing infrastructure, fostering servicing only specialists Secondary market conduits also emerge as the link between originators and in

16、vestorsCompetitive behavior Several industry players engage in pure play strategies by focusing only on originations, investments, and servicing Emergence of robust wholesale channel (e.g., thousands of brokers and correspondent lenders) that focuses solely on originating loans that are sold off to

17、investors (e.g., banks, Fannie Mae)CapacityStrong growth in originations capacity (e.g., mortgage bankers and brokers) driven by liquid wholesale and secondary market and growth in customer demand (e.g., refinance boom in early 1990s)Marketing Competitive lenders drive down pricing to reflect indust

18、rys lower cost of capital for conforming mortgages Pricing driven even lower by the emergence of the price-sensitive wholesale channel (e.g., brokers, correspondents) which has seen tremendous growth since the early 1980sArea of focusStructureConductPerformanceVolume Originations continue to be cycl

19、ical with interest rates; however, baseline volume has increased due to lower rates to consumersProfitabilityMargins for the industry are compressed Fannie Mae and other agencies capture disproportionate share of industry profits (e.g., 20-30%)6NY-262416.121/980625YrmejHR1The impact of this change h

20、as The changes in the market structure can be seen in each aspect of the business system.CHANGES IN CONDUCT FOR MORTGAGE INDUSTRY PLAYERSOriginationServicingInvestmentSince the agencies standardized the mortgage product, a robust wholesale channel develops and grows (aided by refinancing booms) with

21、 small brokers and correspondent lenders acquiring loans that are referred to or sold to larger originatorsTraditional retail channel shrinks as small players who are not at scale close down to avoid competing with low-cost brokers/scale originatorsAs refinance booms end, competition among brokers a

22、nd correspondents intensifies with price-based competition becoming more prevalent, placing pricing pressures on larger originators via:Demands for lower pricing for wholesale channel intermediariesSpillover price competition for large originators retail channelsOriginations market consolidates as a

23、 result of decline in retail channel and poor economicsAs the industry business system has become unbundled and a third-party servicing market emerged, large servicers have been seeking aggressive growth to increase scaleAs a result, the servicing market has been slowly consolidating over the past d

24、ecadeAgencies, with their funding cost advantages for conforming loans, pass along some of their cost advantages to consumers in the form of lower rates for conforming mortgages Private securitizers have also become increasingly active in non- conforming mortgages (e.g., jumbo)EXAMPLE7NY-262416.121/

25、980625YrmejHR1The changes in the market struCorrespondent (e.g., correspondent funds loan with own capital and immediately resells loan to portfolio lender/investor)CHANNEL STRUCTURERefinanceown portfolioBrokered-in (e.g., broker takes application on behalf of end-lender)Conduit (e.g., block transac

26、tion between originators and investors)Grown after agencies restructured mortgage industryOriginationsThe major impact of Fannie Mae and Freddie Mac on originations has been the rise of the wholesale channel. The standardization of underwriting and the ability to sell loans on a guaranteed flow basi

27、s has allowed small originators and correspondents to begin originating.Walk-in(e.g. branches)Referral (e.g., realtors, builders)Corporate/affinityWholesaleRetail8NY-262416.121/980625YrmejHR1Correspondent (e.g., corresponCAGR12.6%NUMBER OF MORTGAGE BROKERSThousandsThe number of brokers has grown dra

28、matically . . . * As of 6/97Source: Mortgage Banking; Inside Mortgage Finance, National Association of Mortgage Brokers198719891991199319951997*9NY-262416.121/980625YrmejHR1CAGRNUMBER OF MORTGAGE BROKERSORIGINATION CHANNEL MARKET SHAREPercent of industry originations100% = $532 billion. . . and has

29、helped the wholesale channel capture almost two-thirds of current industry originations. * As of 6/97Source: Mortgage Banking; Inside Mortgage Finance, National Association of Mortgage BrokersRetailWholesaleMid-1980s19921997CorrespondentBroker originations10NY-262416.121/980625YrmejHR1ORIGINATION CH

30、ANNEL MARKET SHAOverall, the price sensitivity of these channels, especially in non-refinance periods, has caused a secular compression of spreads in the mortgage industry.SPREADS 30-YEAR MORTGAGE VS. 10-YEAR TREASURIESBasis pointsLast refinance cycleYearAverage spread1986-93165 b.p.s1994-97133 b.p.

31、s* As of 6/97Source: Federal Reserve Board; Sanford Berstein & Co.; Freddie Mac; McKinsey analysis198619871988198919901991199219931994199519961997*11NY-262416.121/980625YrmejHR1Overall, the price sensitivityAs a result, the originations market has become increasingly consolidated over the past decad

32、e.SHARE OF MORTGAGE ORIGINATIONS* $ Billions, percent100% = 499* Includes retail and wholesaleSource: SMR; HMDA, Mortgage Market Statistical AnnualESTIMATEAll othersTop 25 originators19861987198819891990199119921993199419956/96 E5074464534585628941,02076963680812NY-262416.121/980625YrmejHR1As a resu

33、lt, the originations The impact of these events on profits has been significant.COMPARISON OF CHANNEL PROFITABILITY Basis points of net value added (NPV of loan with 7-year life)Average profitability = 40 basis pointsSource: McKinsey analysisRealtor referralsBrokered-inCorrespondentDISGUISED CLIENT

34、EXAMPLE13NY-262416.121/980625YrmejHR1The impact of these events on SHARE OF SERVICING 1992-96$ Trillions, percent of serviced assetsServicingSimilarly, the impact on servicing has also been dramatic. The advent of third party servicing, prompted by the agencies, has led the servicing market to becom

35、e increasingly consolidated as the top servicers have attempted to increase scale to drive down costs.DriversScale economies significant in servicing; fixed costs comprise 50% of total costs Scale also allows significant investment in technology to lower unit cost Cost of purchased servicing up as s

36、ervicing players vie to fill their factories across all rate environmentsSource: SMRAll othersTop 25 servicers1992100% = 3.03.81993199419956/9614NY-262416.121/980625YrmejHR1SHARE OF SERVICING 1992-96SeThe increasing need for technology and high price of servicing rights has resulted in only

37、 top scale providers earning their cost of capital.PROFIT MARGIN FROM MORTGAGE SERVICING Return on equityEarly 1980sTop scaleservicerstodayOtherservicerstodaySource: McKinsey Consumer Credit Practice15NY-262416.121/980625YrmejHR1The increasing need for technoInvestmentFinally, in the investment end of the business, agencies have used their funding advantages to lower borrowing rates for conforming mortgage borrowers. As a result, lenders who hold conforming mortgages must absorb this reduction in yield through lower in