At a recent conference sponsored by America's Community Bankers, Federal Reserve Chairman Alan Greenspan has discussed the future of the mortgage market, though no one seemed alarmed by his predictions.

In a speech made Tuesday, Nov. 2, Greenspan said, "The 1990s have generally been a great time of robust growth for the mortgage markets," while noting that the current slowdown in new and existing home sales is likely to persist in the coming years.

He credited the creation of the mortgage-backed securities market, through issuance of Ginnie Mae passthrough securities and Freddie Mac securities backed by conventional loans in the early 1970s, as providing a safety valve during the times of rising interest rates and "Regulation Q" ceilings during the 1970s.

Since then, MBS have grown dramatically and are now widely accepted among investors. The industry has evolved from a time when thrift issuers had little structure to a time when mortgages "no longer need to be funded or originated through specialized financial institutions."

While the market is still growing, Greenspan has predicted a slowdown in refinancing and home sales to continue. "The rate of increase of both our population and the number of households appears destined to slow in the coming years," he added.

He also predicted continued growth in existing home sales, at a slower rate of increase, and said that "newly constructed home growth is likely to be flat at best, with very little upside potential." He cited the current growth as a result of a broader spectrum of mortgage products and increased efficiency of loan originations and underwriting.

Though insightful as to the coming about of the mortgage market and the paths it is likely to head in, investors were not all that surprised by Greenspan's remarks.

"I think the notion that a smaller percentage of mortgages will be supporting new home construction, and that probably the rate of growth of the mortgage securities market will slow somewhat are things that are pretty widely believed by housing economists and mortgage analysts," said Art Frank, director of mortgage research at Nomura Securities.

Furthermore, Greenspan urged those in the mortgage industry to shift their focus toward younger potential homebuyers, particularly those between the ages of 25 and 29, as the rate of ownership has dropped to 36% from 44% in the early 1970s. He indicated that doing so "would be in the best interests of both [the] industry and the country."

Despite this information, all ears are anxiously awaiting his Nov. 16 Fed announcement regarding short-term interest rates.

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