MBA Economic and Mortgage Finance Outlook Prepared for Capital Markets Cooperative

September 6, 2018

Presented by

Mike Fratantoni Mortgage Bankers Association

Marina Walsh Mortgage Bankers Association

Single Family Origination Volume Through the Cycle

Source: MBA Forecast

459563

8931,020

769640

785833

1,656

1,3791,139

2,243

2,854

3,812

2,773

3,027

2,726

2,306

1,509

1,995

1,698

1,436

2,0441,845

1,261

1,679

2,051

1,7101,606

1,5921,631

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

1990199119921993199419951996199719981999200020012002200320042005200620072008200920102011201220132014201520162017201820192020

MortgageOriginationsHistoryandForecast

Total Refi Purchase

$Billions

MBA Forecast Summary

Source: MBA Forecast

2017 2018 2019 2020

GDP Growth 2.6% 3.0% 2.3% 1.5%Inflation 2.1% 2.6% 2.4% 2.4%Unemployment 4.4% 3.9% 3.6% 3.8%Fed Funds 1.375% 2.375% 3.125% 3.125%10-year Treasury 2.4% 3.1% 3.4% 3.4%30-year Mortgage 3.9% 4.8% 5.2% 5.3%New home sales (000s) 617 643 661 673 Existing home sales (000s) 5,542 5,439 5,560 5,643 Purchase originations ($B) 1,110 1,149 1,197 1,236 Refi originations ($ B) 600 457 395 395 Total originations ($B) 1,710 1,606 1,592 1,631 Mortgage debt outstanding ($B) 10,010 10,370 10,760 11,130

Job Growth Unexpectedly Strong

Source: BLS 4

254 265

162

(144)

(43)

10

170 210

175

96

(297)

(422)

88

174 179 192

250 226

195 182 176

324

155 175

268 248

157

(500)

(400)

(300)

(200)

(100)

-

100

200

300

400

Thou

sand

s of

jobs

Monthly Payroll Growth

Unemployment and Participation Low

Source: BLS 5

62.0

62.5

63.0

63.5

64.0

64.5

65.0

65.5

66.0

66.5

67.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

Part

icip

atio

n R

ate

Une

mpl

oym

ent/u

nder

utili

zatio

n R

ate

Unemployment and Labor Force Participation

Civilian Participation Rate: 16 yr + (SA, %) Civilian Unemployment Rate: 16 yr + (SA, %)

Unempl+Margin Attach+Part Time Econ Reasons/CLF + Margin Attach (SA,%)

Compositional Changes Holding Down Wage Growth

Source: BLS 6

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

Jan-06

Apr-06

Jul-0

6Oct-06

Jan-07

Apr-07

Jul-0

7Oct-07

Jan-08

Apr-08

Jul-0

8Oct-08

Jan-09

Apr-09

Jul-0

9Oct-09

Jan-10

Apr-10

Jul-1

0Oct-10

Jan-11

Apr-11

Jul-1

1Oct-11

Jan-12

Apr-12

Jul-1

2Oct-12

Jan-13

Apr-13

Jul-1

3Oct-13

Jan-14

Apr-14

Jul-1

4Oct-14

Jan-15

Apr-15

Jul-1

5Oct-15

Jan-16

Apr-16

Jul-1

6Oct-16

Jan-17

Apr-17

Jul-1

7Oct-17

Jan-18

Apr-18

Jul-1

8

UnemploymentRateByEducationalAttainment

College <Bachelors HighSchDiploma <HSDiploma

Core Inflation Stepping Up

Source: BLS 7

2.4

2.9

(1.0)

(0.5)

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Jan-14

Mar-14

May-14

Jul-1

4

Sep-14

Nov-14

Jan-15

Mar-15

May-15

Jul-1

5

Sep-15

Nov-15

Jan-16

Mar-16

May-16

Jul-1

6

Sep-16

Nov-16

Jan-17

Mar-17

May-17

Jul-1

7

Sep-17

Nov-17

Jan-18

Mar-18

May-18

Jul-1

8

ConsumerPriceIndexYearoveryearpercentchange

AllItemsexc.Food&Energy AllItems

Global Yields Have Started to Increase

Source: Thomson Reuters 8

Trade Tensions…What is the Impact?

9

Economic Growth and Rates – What’s Next?

Rates Expected to Increase

Source: Federal Reserve, Freddie Mac, MBA 11

How High Will the Fed Go?

12

Millennials Hitting Peak Housing Demand Years

4.7

3.9

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100+

Avg=4.3

Millions

Born 1980 or later Born 1966-80 Born 1948-65 Born 1947 or earlier H

eads

hip

rate

s in

crea

se fr

om 1

5% to

45%

13 Source: Census Bureau

-3

-2

-1

0

1

2

3

4

18-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-70 70-75 75-80 80+

Mill

ions

ProjectedChangesinHouseholds,byAge2014-2024

Non-Hisp. White Black Asian Other Hispanic

Using Forecasted Headship Rates

Potential for 16 Million Additional Households by 2024 Changing Demographics and Economy Plus Trends

Source: IPUMS CPS and MBA

+12.9 million

- 2.1 million

+5.1 million

14

Purchase Volume Rising: Seasonality Increasing in Importance

Source: MBA Weekly Applications Survey 15

0

50

100

150

200

250

300

350

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51WeekoftheYear

PurchaseMortgageApplicationsIndex(byweekoftheyear,NSA)

2014 2015 2016 2017 2018

“Gig Job” Share Growing?

1995 2005 2017 Independent contractors

6.7 7.4 6.9

On-call workers 1.7 1.8 1.7 Temporary help agency

1.0 0.9 0.9

Contract workers 0.5 0.6 0.6 Total 9.9 10.7 10.1

Sources: BLS, Washington Post (Robert Samuelson) “Is the gig economy a myth?” 16

College Graduates Earn Nearly Twice the Wages of High School Graduates

Source: IPUMS CPS, MBA, Autor (2014)

40

50

60

70

80

90

100

1975 1979 1983 1987 1991 1995 1999 2003 2007 2011 2015

USCollege/HighSchoolPremium1975-2014Collegeversushighschoolrealwagegap(%)

17

Diverging Homeownership Trends

Source: IPUMS CPS, MBA

65%

53%

50%

55%

60%

65%

70%

75%

Homeownership Rate of 16 – 64 Year Old Heads By Education

College Degree, 16-64 year olds No College Degree, 16-64 year olds

18

The Rise of Alternative Student Debt Repayment Plans

Source: Office of Federal Student Aid and MBA

19

$0

$100

$200

$300

$400

$500

$600

$700

2013Q3 2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4

ChartoftheWeek-January27,2017FederalDirectStudentLoansinRepayment($B),ByRepaymentType

FixedPayment Other Graduatedpayment Income-Contingent Income-Based PayAsYouEarn REPAYE

20

21

Single Family Starts Still Gathering Steam; MF Steady

Source: Census, MBA 22

0

200

400

600

800

1000

1200

1400

1600

1800

2000

Thou

sand

s

SingleandMultiFamilyHousingStartsSAAR,thousands

HousingStarts:1Unit(SAAR,Thous.Units) HousingStarts:TotalMultifamily(SAAR,Thous.Units)

Labor Unfilled construction jobs rising

-

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

Job openings rate - Construction

12-month moving average

Source: BLS

Sluggish Home Sales As Inventory Remains Tight

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

Jan.2000

Jun.2000

Nov.2000

Apr.2

001

Sep.2001

Feb.2002

Jul.2002

Dec.20

02

May.2003

Oct.2003

Mar.2004

Aug.2004

Jan.2005

Jun.2005

Nov.2005

Apr.2

006

Sep.2006

Feb.2007

Jul.2007

Dec.20

07

May.2008

Oct.2008

Mar.2009

Aug.2009

Jan.2010

Jun.2010

Nov.2010

Apr.2

011

Sep.2011

Feb.2012

Jul.2012

Dec.20

12

May.2013

Oct.2013

Mar.2014

Aug.2014

Jan.2015

Jun.2015

Nov.2015

Apr.2

016

Sep.2016

Feb.2017

Jul.2017

Dec.20

17

May.2018

HomeSales(leftaxis)andInventory(rightaxis)Seasonallyadjustedannualrate

Existing New MthSupply(New) MthSupply(Existing)

Source: Census. NAR

Impact of International Buyers on US Existing Home Sales

Purchases of U.S. homes by international buyers was $121B in the fiscal year ending March 2018, down from $153B the previous year, a 21% decline, according to the NAR. The drop was driven by accelerating home prices, a strengthening dollar, and geopolitical concerns. The estimated number of units bought by international buyers is 266,800, or 5 percent of existing home sales (units). The share of dollar volume of home sales that this represents is around 8 percent.

House Price Growth Outpacing Income Growth; Price Gains to Slow

Source: FHFA, BLS 26

27

Cyclical Affordability Problems

Indexes = 100 in 1991. Source: FHFA and BEA

28

Cyclical Strain is Lower in Other Places

Indexes = 100 in 1991. Source: FHFA and BEA

29

Source: MBA Powered by Ellie Mae’s AllRegs® Market Clarity® 30

31 Source: MBA Powered by Ellie Mae’s AllRegs® Market Clarity®

FHA Credit Easing

Source: HUD 32

Shape of the Mortgage Industry

Source: 2011-2016 HMDA

33

36%

25%

4%

36%

30%

26%

5%

40%

27%

26%

5%

42%

24%

25%

5%

46%

21% 25

%

5%

48%

21% 23%

5%

51%

0%

10%

20%

30%

40%

50%

60%

LargeDepository CommunityBank CreditUnion(<$10bnAssets)

IndependentMortgageBank

ShareofHomePurchaseVolume(#)byCompany Type

2011 2012 2013 2014 2015 2016

52%

20%

7%

22%

45%

19%

7%

28%

47%

16%

7%

31%34

%

17%

8%

41%

27%

18%

8%

47%

26%

18%

7%

49%

0%

10%

20%

30%

40%

50%

60%

LargeDepository CommunityBank CreditUnion(<$10bnAssets)

IndependentMortgageBank

ShareofRefinancingVolume(#)byCompanyType

2011 2012 2013 2014 2015 2016

The Independent Mortgage Banker

Mortgage Banker Production Profitability Through the Cycle

Source: MBA Origination Estimates, MBA Performance Report 35

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

(60)

(40)

(20)

-

20

40

60

80

100

120

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

IMBNetProductionIncome(bps)vs.MBAEstimatedIndustryVolumeNPI(Basispoints) IndustryVolume$Billions Recession

36

IMB Net Production Income (basis points)

Source: MBA’s Quarterly Mortgage Bankers Performance Report, www.mba.org/performancereport

86.5

74.6

38.2

8.7

(8.3)

45.742.1

32.1

60.4

67.3

55.3

21.6

33.2

72.6 73.7

24.0

10.4

45.740.5

9.3

(7.8)

21.3

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

Q113

Q213

Q313

Q413

Q114

Q214

Q314

Q414

Q115

Q215

Q315

Q415

Q116

Q216

Q316

Q416

Q117

Q217

Q317

Q417

Q118

Q218

NetProductionIncome(bps)

Avg.ProductionVolume($M)

36.4

48.4

57.4

38.0

47.6

(7.8)

21.3

40.5

9.3

15.8

Avg.QuarterlyProductionProfit(bps):2008-Q22018 ProductionProfit(bps)-MostCurrentQuarter

Avg.Q217-Q218Q417Q317Q218Q118

AllQTRAvg.Q4Avg.Q3Avg.Q2Avg.Q1Avg.

37

IMB Net Production Income (basis points)

Source: MBA’s Quarterly Mortgage Bankers Performance Report, www.mba.org/performancereport

IMB Fully-Loaded Production Expenses ($ per loan)

Source: MBA’s Quarterly Mortgage Bankers Performance Report, www.mba.org/performancereport

38

5,779

5,818

6,368

6,959

8,025

6,932

6,769

7,000

7,195

6,984

7,080

7,747

7,845

7,120

6,969

7,562

8,887

7,774

8,060

8,475

8,957

7,877

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

Q113

Q213

Q313

Q413

Q114

Q214

Q314

Q414

Q115

Q215

Q315

Q415

Q116

Q216

Q316

Q416

Q117

Q217

Q317

Q417

Q118

Q218

Fully-LoadedProductionExpense($perloan) Avg.ProductionVolume($M)

Source: MBA’s Quarterly Mortgage Bankers Performance Report, www.mba.org/performancereport

Other Peer Groups

Peer Groups: Overall Net Production Income (bps)

Source: PGR: MBA and STRATMOR Peer Group Roundtables: www.mba.org/pgr 41

(40)

45

42

16

(50.0)

-

50.0

100.0

150.0

200.0

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

LargeBanks LargeIndependents Mid-SizeIndependents Mid-SizeBanks

Peer Groups: Weighted Avg. Channel Mix (% based on $)

Source: PGR (2017 Data): MBA and STRATMOR Peer Group Roundtables: www.mba.org/pgr

42

37%29%

66%

85%77%

14%

11%

17%

4%

7%

3%

12%

6%2% 10%

47% 48%

10% 9% 6%

LargeBanks LargeIndependents Mid-SizeHybridBanks Mid-SizeCBCUs Mid-SizeIndependents

Correspondent

BrokerWholesale/Mini-Corr

ConsumerDirect

Retail

$2.4BAvg.TotalProductionVolume

$34.0B $21.2B $2.2B $1.4B

Total PGR Sample: Net Production Income by Channel (bps)

Source: PGR: MBA and STRATMOR Peer Group Roundtables: www.mba.org/pgr

59.210.0

43.1 45.113.0

(25.0)

-

25.0

50.0

75.0

100.0

125.0

2013 2014 2015 2016 2017

Retail

TotalSample

111.0 61.8 72.1 83.2 6.5

(25.0)

-

25.0

50.0

75.0

100.0

125.0

2013 2014 2015 2016 2017

ConsumerDirect

TotalSample

58.5

(8.6)

51.3 42.7 25.5

(25.0)

-

25.0

50.0

75.0

100.0

125.0

2013 2014 2015 2016 2017

BrokerWholesale/Mini-Corr

TotalSample

44.413.1

30.6 41.0 6.8

(25.0)

-

25.0

50.0

75.0

100.0

125.0

2013 2014 2015 2016 2017

Correspondent

TotalSample

Peer Groups: Retail Product Mix (% based on #)

Source: PGR: MBA and STRATMOR Peer Group Roundtables: www.mba.org/pgr (2017)

63%

24%

13% 15%

23%

34%

82%

42%

37%

2%7%

0%

80%

35%

28%

5% 3%7%

68%

26%

15% 15% 13%

35%

83%

43% 41%

2% 3%0%

Purchase First-TimeHomebuyer Government ARM Jumbo OriginatedforPortfolio

LargeBanks LargeIndependents Mid-SizeHybridBanks Mid-SizeCBCUs Mid-SizeIndependents

Peer Groups: Retail Channel Production Expenses

45 Source: PGR (2017 Data): MBA and STRATMOR Peer Group Roundtables: www.mba.org/pgr

5.4 4.4 5.2 5.7 4.4

4.7

3.94.3 4.5

3.9

2013 2014 2015 2016 2017

LoansClosedperLoanOfficer(permonth)

AllBanks AllIndependents

6.1 5.7 5.8 5.3 4.7

5.65.2 5.2 5.1

4.6

2013 2014 2015 2016 2017

LoansClosedperFulfillmentFTE(permonth)

AllBanks AllIndependents

Peer Groups: Retail Channel Productivity

Source: PGR: MBA and STRATMOR Peer Group Roundtables: www.mba.org/pgr

MBA Research Sign-Ups and Services

47

Contact Information and MBA Resources

48

Mike Fratantoni, Ph.D. Chief Economist & Senior Vice President | Research and Industry Technology 202-557-2935 mfratantoni@mba.org Marina B. Walsh Vice President, Industry Analysis | Research & Economics 202-557-2817 mwalsh@mba.org

MBA Research: www.mba.org/research

RIHA: www.housingamerica.org