Home mortgages on bank balance sheets fell at an annual rate of $20 billion in the fourth quarter, the slowest pace since the first quarter of 2008, according to seasonally adjusted data from the Federal Reserve.
But as close as bank portfolio loans came to once again being a channel for additional credit for homeowners, federally backed mortgages remain the coin of the realm, and the government home finance apparatus appears poised to remain the sector's sole net lender, a role it has filled for about two years so far (see charts).
Fed estimates based on information from a sample of institutions said closed-end residential mortgages at commercial banks have fallen sharply in the first quarter — at an annual pace of 10.4%, if the period finishes level with the seasonally adjusted $1.5 trillion measurement for March 17.
Growth of portfolio loans at banks was strong during the mortgage boom in the middle of the decade but slackened as Wall Street securitization collapsed, though it remained positive for some time even after the field inverted in favor of the government-sponsored enterprises and Federal Housing Administration. (Overall, mortgage debt fell 2.9% last year from 2007, to $10.8 trillion, reflecting mass defaults.)
Recently, banks have preferred to place their originations behind the credit shield offered by federally backed mortgage bonds. As a proportion of total assets, such securities increased 2 percentage points from the end of 2007, to 8.6% at the end of last year, according to data from the Federal Deposit Insurance Corp., and residential mortgages fell 2.2 points, to 19.7%.
Direct bank mortgage holdings appear to be disconnected from gyrations in origination pipelines — last year's portfolio loan outflows occurred amid a wave of refinancings. (The Mortgage Bankers Association predicted in March that originations would fall 37% this year, to $1.3 trillion.)
In any event, a factor that could weigh against growth in bank mortgage positions is fear about exposure to long-term assets once rates rise — an issue the FDIC has warned about.
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