Federal Reserve: National Mortgage Portfolio Looks Strong

Amidst all the talk of a cooling Florida real estate market, along with national mortgage applications and loan refinancings falling, the Federal Reserve felt the need to speak up. Its governor, Mark Olson, had an important fact to point out:

The U.S. mortgage portfolio is remaining strong despite these areas of worry. He also noted, however, that the rapid growth of nontraditional Florida home loans raises issues of concern.

“The overall U.S. national mortgage portfolio is very strong, but we clearly see there are some markets where we are seeing rising delinquencies, and that continues to be a concern for us,” Olson said at a Federal Reserve Board public hearing on the home equity market.

Olson said that change in the home mortgage and home equity lending industry raises fundamental issues about fairness and levels of risk.

Worries regarding nontradtional/risky Florida home mortgage loans

The growth in nontraditional loan products, such as adjustable rate mortgages, “certainly is the most significant change that has taken place in the marketplace and it has raised some real issues,” Olson said.

The central banker said the rise of the secondary mortgage market has created a “voracious appetite” for Florida home loan products and that “it is not clear we have the same checks and balances, and that underwriting is done as carefully.”

The fundamental asymmetry of knowledge between Florida home loan lender and recipient also creates “a real responsibility for mortgage lenders not to be abusive,” he said. “Every time I have sat down to close my own mortgage loan I have felt at a disadvantage in terms of my understanding; so I can imagine what a first-time buyer must feel.”