Mortgage Industry: Overview
The mortgage industry of the United States is a significant financial sector, accounting for $9.4 trillion of the total debt in 2019. This value has increased year-on-year, apart from the four years (2009 to 2012) connected to the global financial crisis. Mortgage aggregators make it easier for consumers to compare financial product offerings. However, almost 50% of consumers only look into one mortgage option.
- Mortgage debt is the most extensive form of consumer debt by far, accounting for $9.44 trillion of the total debt of $13.95 trillion in 2019.
- Mortgage debt has increased year-on-year, outside of the four years (2009 to 2012) associated with the Lehman Brothers collapse and global financial crisis.
- Mortgage interest rates have been trending downwards, falling from 7.68% in 1992 to 3.19% in 2019 (15-year fixed-rate mortgage).
- Mortgage aggregators provide consumers with the opportunity to contrast differing mortgage products, with the aggregator receiving a commission.
- The Consumer Financial Protection Bureau revealed that almost 50% of mortgage purchasers only look at one mortgage product. Mortgage aggregators have the opportunity to aid consumers in comparisons.
- Financial product providers are generally satisfied with the business received by mortgage aggregators, particularly those that are continuously innovating.
- The federal government's monetary policy is one of the most influential interest rate influencers.
- Mortgages are debt securities issued by finance lenders to facilitate home ownership.
- In addition to banks and other commercial providers, the federal government established associations to promote home ownership, specifically the Government National Mortgage Association (GNMA), the Federal National Mortgage Association (FNMA), and the Federal Home Loan Mortgage Corporation (FHLMC).
- The Government National Mortgage Association (aka Ginnie Mae) was created in 1968 with a mission of expanding affordable housing finance. It allows mortgage lenders to obtain a better price for their loans, and in turn, enabling lenders to make new mortgage loans available to consumers.
- The Federal National Mortgage Association (aka Fannie Mae) was founded in 1938 during the Great Depression to expand the secondary mortgage market, allowing lenders to reinvest assets into more lending, and thus, increasing the number of lenders by reducing reliance on locally-based savings and loans associations.
- The Federal Home Loan Mortgage Corporation (aka Freddie Mac) was created in 1970 to expand the secondary mortgage market, like the FNMA, but sells them as a mortgage-backed security to investors in the open market. This action increases the supply of money available for lending, increasing the money available for new home purchases.
- The mortgage industry has increased in value year-on-year, except for a four-year decline from 2009 to 2012.
- The decline was precipitated by the subprime mortgage crisis that led to the global financial crisis and the collapse of Lehman Brothers. The causes are numerous and complex but ultimately relate to banks selling too many mortgages, home prices dropping, and borrowers defaulting on loans. Banks were unwilling to lend to each other because they could not price the value of mortgage-backed securities.
- Mortgages in the United States represent a multi-trillion dollar industry. The Mortgage Bankers Association of America stated that the total value across both refinancing and new purchases was $3.675 trillion in 2003. As of September 2019, the total mortgage debt by consumers across the United States was $9.44 trillion, representing the largest proportion of total consumer debt ($13.95 trillion).
- Total mortgage debt has increased annually, more than doubling since 2001 to 2018, except for the four-year period (2009 to 2012) where mortgage debt decreased. The decrease was precipitated by the depreciation in the subprime mortgage market in 2007, which subsequently developed into an international banking crisis when the investment bank Lehman Brothers collapsed on September 15, 2008.
- Conversely, interest rates have steadily trended downwards, with a 7.68% rate (15-year fixed-rate mortgage) in 1992 falling to 3.19% in 2019.
- Research from the Consumer Financial Protection Bureau found that nearly half of mortgage borrowers do not shop around when searching for a home, and 77% of borrowers only apply to one lender or broker instead of searching for better deals.
- This development has allowed mortgage aggregators, platforms, and marketplaces, where consumers look for mortgages and information about mortgages, to aid consumers by encouraging and assisting them in finding options they may otherwise not know about.
- Mortgage aggregators promote products, for which they receive compensation. Consequently, while the consumer still identifies advantageous options, no mortgage aggregator has a complete database of all available products and options.
- Examples of mortgage aggregators are Nerd Wallet, Bankrate, Smart Asset, Comparisons.org, Wallet Hub, Consumers Advocate, Money Under 30, The Simple Dollar, Lower My Bills, Credible Funding Hero, and HSH.
- Aggregators provide superior choice and information to purchasers. Research finds that lending providers and brokers are mostly satisfied with the results they receive from aggregators, particularly those that are continually innovating.
- Despite the benefits aggregators bring to consumers and lenders, there is evidence that the mortgage aggregator industry has materially affected the adoption of mortgages within the United States. The overall mortgage debt has been rising year-on-year since the financial crisis, and without a perceivable anomaly that could be attributed to a disrupting influence.
- The most notable factor influencing the economy generally and mortgage rates is the monetary policy pursued by the Federal Reserve Bank, along with external events such as coronavirus concerns.