Estimates of Home Mortgage Originations, Repayments, and Debt on One-to-Four-Family Residences Alan Greenspan and James Kennedy 2005-41
Abstract: Since 1997, when the Department of Housing and Urban Development discontinued its quarterly gross mortgage flow system, there has been no systematic attempt to disaggregate the net change in outstanding home mortgage debt into its constituent gross flows. Using a different approach, we have developed a system that reconciles the change in regular home mortgage debt with mortgage flows. The latter includes home purchase and refinance originations, and mortgage purchases, sales, and repayments for five types of mortgage originators and six categories of other mortgagees. In the process, we derive the sources of equity extraction from homes financed by mortgages.
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Greenspan-cash from home values grew mortgage debt Mon Sep 26, 2005 04:08 PM ET By Mark Felsenthal
WASHINGTON, Sept 26 (Reuters) - Federal Reserve Chairman Alan Greenspan said on Monday his own research reveals that 80 percent of the gain in U.S. mortgage debt is due to people taking cash out of the value of their homes.
"Discretionary extraction of home equity accounts for about four-fifths of the rise in home mortgage debt," he said, describing the paper in a speech to the American Bankers' Association.
The paper, "Estimates of Home Mortgage Originations, Repayments, and Debt on One-to-Four-Family Residences," was written with Fed staff member James Kennedy and posted to the Fed's website (http://www.federalreserve.gov/pubs/feds/2005/index.html).
It is Greenspan's first study since one he co-authored in October 1996 entitled "Motor Vehicle Stocks, Scrappage, and Sales."
U.S. homeowners had $7.96 trillion in home mortgage debt outstanding at the end of the second quarter of 2005, up from $4.82 trillion at the end of 2000, according to the Fed's most recent quarterly "Flow of Funds" report. The value of homeowners' real estate equity rose to $10.47 trillion from $6.58 trillion over the same period.
Home equity extraction can take place through the profit from the sale of a home, taking cash out of the higher value of a home by refinancing a mortgage, or borrowing against the increased value of the home through a home equity loan, the Fed chairman said.
Greenspan said 25 percent to 33 percent of the value of home equity loans and mortgage cash-outs finances personal consumption expenses directly.
About 25 percent of that equity extraction is used to pay off other debt, he said. Some people use cash from home value gains as downpayments for a subsequent home, he added.
One conclusion that can be drawn from his analysis is that the decline in the U.S. savings rate over the past decade -- long a concern for policy makers -- can be explained by the decline in interest rates and by the increase in overall household wealth -- not just homes but stocks, Greenspan said.
As a result, if mortgage interest rates rise, home sales and refinancing would likely slow, and growth in consumption would also ease. Greenspan said. The personal savings rate, accordingly, would rise.
Taking the hypothesis a step further, the Fed chair said greater savings would dampen imports of goods into the United States, and that the U.S. trade deficit would shrink.