Government-backed agencies, including Fannie Mae, Freddie Mac and Ginnie Mae, own or guarantee 95 percent of new residential mortgage loans, according to a letter from the Federal Reserve Bank of San Francisco.
In the first quarter of 2006, non-agency securitization (jumbo loans, option arms, subprime, etc) peaked at a staggering 40 percent of new loan originations, while Fannie and Freddie held about 50 percent.
Meanwhile, all that mortgage securitization resulted in banks, thrifts, and credit unions ceding market share to capital market investors, who sliced and diced mortgages to mitigate risk.
“According to Federal Reserve flow of funds data, the banking institution share of total mortgage assets declined from a peak of about 75% in the mid-1970s to about 35% in 2008,” said John Krainer, Senior Economist, in his analysis.
“Much of the decline in banking institution housing portfolios over this period was related to the expansion of the government-sponsored enterprises (GSEs) Fannie Mae, Freddie Mac, and Ginnie Mae.”
The share of mortgages retained by the originating institution averaged roughly 15 percent during the housing boom, but has fallen significantly since, as evidenced by that nice little chart below.
The worrisome issue now is untangling the housing market from all that government support.
“With the vast majority of current mortgage lending now intermediated in some form by the GSEs, it will be difficult for the housing market to return to normal,” Krainer concluded.