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TH E M R EP O RT | 63 SECONDARY MARKET THE LATEST O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T Modeling the Future If the secondary mortgage market is to undergo significant change, what shape will those changes take? A decade after Fannie Mae and Freddie Mac were put under the conservatorship of the Federal Housing Finance Agency (FHFA), the voices for housing finance reform are getting louder. While Sen. Mike Crapo released an outline of what hous- ing finance reform should look like, the National Association of Realtors (NAR) collaborated with Susan Wachter, the Albert Sussman Professor of Real Estate Finance at The Wharton School of the University of Pennsylvania, and Richard Cooperstein, Head of Risk Management at Andrew Davidson and Company, Inc., on new research that explores the ideal restructuring of the second- ary mortgage market. The research was released as a working paper by NAR recently and proposed a "redesigned alterna- tive based on economic principles and national objectives." It explained why housing finance markets differ from purely competitive markets but are similar to those for public utilities, thus informing the "nature of reform needed to ensure financial stability going forward." The working paper touched upon six key initiatives that could be implemented to realize the vision of holistic housing finance reform. They included: • Leveraging reforms and in- novations implemented since the crisis while completing the process with instrumental updates for a fully functioning liquid market • Promoting competition in the secondary market through proven structures to correct market failures • Preserving the 30-year fixed- rate mortgage and focusing the mission on liquid secondary markets for Middle America and underserved borrowers • Minimizing the cost to con- sumers in normal stress peri- ods while maximizing access for creditworthy borrowers • Protecting taxpayers by using private capital • Maintaining simplicity in the transition while avoiding mar- ket disruptions While recognizing the critical role of the government-sponsored enterprises in housing finance, the paper also strives to codify a structure that would be "effective, resilient, and fair, balancing the tension of private operating com- panies with the public mission." Buyers Keep Their Eyes on Mortgage Rates Nevertheless, a turnaround for the housing market may be on the horizon. T he housing market is seeing some stability after getting a late boost towards the end of 2018 from lower mortgage rates and slowing home price growth, according to Freddie Mac's fore- cast. Mortgage rates especially remain a focus for homebuyers. According to the Freddie Mac forecast, 30-year fixed-rate mortgages began to let up at the end of the year, after climbing for several months, averaging 4.6 percent in 2018 and dropping to a nine-month low of 4.45 percent in early January. "Despite the weakening of the housing market in 2018, early 2019 data signals a possible turnaround for the year to come," said Sam Khater, Chief Economist, Freddie Mac. "This recent uptick in activ- ity proves that homebuyers are very sensitive to changing interest rates and will likely respond posi- tively if mortgage rates remain below five percent." While rates saw a slight uptick towards the end of January, end- ing the month at 4.46 percent, Freddie Mac expects them to average below the 5 percent mark at 4.7 percent in 2019 before in- creasing to 4.9 percent in 2020. Though home sales have seen a sluggish start to the year, Freddie Mac projected them to regain momentum increasing to 6.09 mil- lion in 2019 and 6.14 million by 2020. The report indicated that the surge would mostly come from growth in existing home sales while "new home sales are expected to remain almost flat" in 2019. Another factor that is likely to give homebuyers a reason to smile, according to Freddie Mac, is home prices. The report indicated that after increasing for years, home prices have finally begun to cool with the rate of growth slowing down. It projects home prices to increase by 4.1 percent and 2.7 percent in 2019 and 2020 respectively. Looking at the immediate spring buying season, Khater said that softening house price appre- ciation along with the increasing inventory of homes on the mar- ket and historically low mortgage rates "should give a boost to the spring homebuying season." In terms of mortgage loans, the forecast said that single-family loan origination was expected to increase 2.1 percent to $1.68 trillion in 2019 with the volume remaining steady at this number in 2020. It also revised its projec- tions for the refinance share of originations upward to 27 percent in 2019 and 24 percent in 2020 due to the easing of mortgage rates at the end of 2018.