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US mortgage debt outstanding background

This page is about the definitions behind the primary overview of mortgage debt outstanding, table L.218 of the Flow of Funds.

Summary

9 Jun 2011.

Table L.218 of the Flow of Funds provides a useful overview of total home mortgage funding and how it is split between different classes of lenders. This includes all debt secured by 1-4 family homes – purchase loans, lines of credit, home equity loans, and construction and development loans. The breakdown is by the holder of the original loan, so when an MBS is issued based on a pool of loans, the pool, and not the owner of the MBS, is considered the holder.

For total home mortgage debt of the household sector, one can use either line 1, which is reliable, but too large, because it includes construction and development loans, or line 2, which should be the right total, but whose calculation includes some rough guesses.

Three high level categories suffice to give a reasonably clear picture of how mortgage funding is being supplied: (1) loans held directly on private balance sheets (at banks, thrifts, credit unions, finance companies and REITs, (2) loans backed by the government (grouping (a) the pools underlying securities issued by Fannie Mae, Freddie Mac and Ginnie Mae with (b) unbundled loans held directly on the balance sheets of Fannie and Freddie), and (3) private-label ABS. These together cover over 95% of the total market.

Highlights

General philosophy of Table L.218 (4 Mar 2009) The table reports loans according to the entity holding the original loan, not the issuer or the holder of any final security. So if a loan is made by a thrift, sold to a securitization vehicle, and then the resulting MBS is sold to Fannie Mae, the loan will be included under “ABS issuers”, not under thrifts or GSEs.


Specific lines of interest (9 Jul 2011) Lines are as given in the current table; this has changed from when the Guide to the Flow of Funds was written. [Note: The Guide is somewhat difficult to parse; at one point in 2009 I went to a number of different sources, including GNMA, Fannie, Freddie, and the FDIC, and verified that the definitions as given below made sense according to records elsewhere.]

  • Line 1 is “home mortgage debt of all borrowing sectors”; it is defined as follows: “Home mortgages are loans secured by one- to four-family properties, including owner-occupied condominium units. The total includes second mortgages on properties of these types, loans taken out under home equity lines of credit, mortgages held by households under seller-financing arrangements, and construction and land development loans associated with one- to four-family residences. The household sector is the primary borrower of home mortgages; however, the category also includes business borrowing for construction of one- to four-family residences.”
  • Line 2 is “home mortgage debt of the households and nonprofit organizations sector”; it is derived as line 1 less lines 3 and 4, where 3 and 4 correspond to the nonfarm nonfinancial corporate business sector and the nonfarm noncorporate business sector, respectively, and these are very rough estimates. Line 3 is usually a very low number and how it is calculated probably does not matter too much. But line 4 includes the C&D loans and can be on the order of 20% of line 1, so it matters. Line 4 includes as one component, “construction loans on one- to four-family residences (estimated as 30% of line 4b)”, where line 4b is “Fixed residential investment by nonfarm noncorporate business”. While estimating new construction loans as 30% of fixed investment may be entirely reasonable, this makes line 2 a rather soft number.
  • Line 17 is the retained portfolio of Fannie and Freddie. (Note some reports of the retained portfolios of Fannie and Freddie include private issue and GSE MBS purchased and held by the GSEs, and so give a higher number. This is relevant to their support of the mortgage market, but can lead to double counting.)
  • Line 18 is the sum of loans underlying MBS issued by Fannie Mae, Freddie Mac, and Ginnie Mae, whoever holds them.
  • Line 21, labeled “ABS issuers” reports loans held in pools as backing for private-lable ABS.
  • Private sector balance sheet loans are broken out on separate lines for banks, thrifts, credit unions, finance companies, and REITs.

See also

Clippings below were used in the construction of this page

Flow of Funds definitions

2000. Guide to the FOF, from the Board of Governors of the Fed, can be ordered at http://www.federalreserve.gov/releases/Z1/ffguide.htm.

“Guide to the Flow of Funds Accounts”

There are a number of tables that summarize mortgage debt information; the summaries all go through a core one: F.218 and L.218, “Home Mortgages”.

Line 1, short label “Net borrowing”, long label (for the flow table F.128) “Change in home mortgage debt of all borrowing sectors” is defined as follows: “Home mortgages are loans secured by one- to four-family properties, including owner-occupied condominium units. The total includes second mortgages on properties of these types, loans taken out under home equity lines of credit, mortgages held by households under seller-financing arrangements, and construction and land development loans associated with one- to four-family residences. The household sector is the primary borrower of home mortgages; however, the category also includes business borrowing for construction of one- to four-family residences.”

This number is gathered from a number of sources: “Figures on home mortgages are estimated by the Federal Reserve Board's Financial Institutions Section using data from federal regulatory authorities, other federal agencies, trade associations, and private data reporting services.”

It would be nice to know what part of the total was actually financing home ownership. An estimate is given in line 2, short label “Household sector”, long label “Change in home mortgage debt of the households and nonprofit organizations sector”. However line 2 is derived as line 1 less lines 3 and 4, where 3 and 4 correspond the the nonfarm nonfinancial corporate business sector and the nonfarm noncorporate business sector, respectively, and these are very rough estimates. Line 3 is usually a very low number and how it is calculated probably does not matter too much. But line 4 includes the C&D loans and can be on the order of 20% of line 1, so it matters. Line 4 includes as one component, “change in construction loans on one- to four-family residences (estimated as 30% of line 4b)”, where line 4b is “Fixed residential investment by nonfarm noncorporate business”. While estimating new construction loans as 30% of fixed investment may be entirely reasonable, this makes line 2 a rather soft number.