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Regional Data Associates

RDA

MODEL FOR FORECASTING

SECONDARY MORTGAGE
MARKET ACTIVITY

PREPARED FOR:

THE FEDERAL HOME LOAN

MORTGAGE CORPORATION

BY:

MICHAEL S. CARLINER

April 17, 1982

Demand for Borisase Credit

The fundamental factors affecting the demand for mortgage originations are the volume of new and existing home sales and house prices. Mortgage orisination volume will also be affected by changes in loan-to-value ratios and in the proportion of homes Purchased without institutional mortgages (bought with cash, assumed mortgages, or seller financing). We can express the total mortgage origination volume in terms of the follow

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MORPARTN = Proportion of new house purchase financed by mortgages

MORPARTEX = proportion of existing house Purchases financed by mortgages

Approximately 90% of home purchases involve some type of mortgage credit. The variables MORPARTN and MORPARTEX in the identity reflect not only the extent of cash purchases, but also the extent of seller financing and mortgage assumptions. In the last few years, high mortgage interest rates have caused increased use of assumptions and seller

financing, reducing the value of orisinations relative to the value of transactions in existing homes. In the case of new homes, high mortgage rates have also brought forth various creative responses, but these have typically still involved institutional mortgage originations. Inaccuracies and inconsistencies in the data on originations, sales, completions, prices, and mortgage terms are also reflected in the estimates of MORPARTN and MORPARTEX. The values of MORPARTN and MORPARTEX over the past decade have been as

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Most mortsase credit has been supplied by depository institutions, particularly

thrift institutions. Tables 2a and 2b show the share each of the 11 major institutions

had in mortgage lending in 1981.

Although the thrifts' share of total orginations is

down from a peak of 60% in 1976, thrift institutions continue to be the dominant element both in originations and in holdings of mortgages. However, the ability of thrifts to Provide mortgage credit from their own funds depends on the flows of deposits and the

rate at which their previous mortgage investments are repaid.

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