Following is a condensed version of a speech delivered by Mr. Brendsel, chairman of the Federal Home Loan Mortgage Corp., at last week's convention of the Mortgage Bankers Association in Chicago.
The year 1993 is another record breaker for Freddie Mac and the mortgage banking industry, as the country's housing finance system has demonstrated once again its ability to make credit accessible and affordable for the communities we serve.
Freddie Mac is on pace to surpass last year's purchase volume of over $190 billion, with a majority of those originations coming from mortgage bankers. We expect to purchase about $225 billion by yearend. That means we'll help provide the financing for over two million American families.
That's a reflection not only of the decline in rates that made it possible for millions to refinance, but also of the capacity of the secondary market to purchase and process loans.
The fourth-quarter volume will no doubt be the highest of 1993. Our entire organization is prepared to purchase mortgages and finish the year strongly.
Looking ahead to 1994, we will hit the ground running. All phases of Freddie Mac's multifamily reentry will have been completed. We've taken a thoughtful, measured approach to rebuilding our program by working with an advisory group of multifamily lenders from the Mortgage Bankers Association
On the single-family side, we expect originations to be down between 15% and 20% next year as the pace of refinancing slows.
Competition within the primary market will intensify, however, and that will place a higher premium on quality and making the origination process more efficient.
This year has been a testament to how much consumers have benefited from a system that offers competitiveness at every stage of the lending process. This competition fuels innovation and drives costs down throughout the system.
And it's a system that keeps evolving.
Competition in lending has brought an acceleration of innovation and a more intense search for efficiency.
Today, we are examining each part of the lending process to make it faster, easier, cheaper, and more responsive to America's homebuyers.
Greater improvements in efficiency are coming that will dramatically streamline the origination process. Freddie Mac intends to stay at the forefront of technological innovation and efficiency.
A major initiative at Freddie Mac - automated underwriting - holds great promise. One indication is the number of firms that are already exploring automated underwriting's potential.
While the potential is great, many of you cannot decide if you should make the significant investment in building your own underwriting system.
We believe you should not be forced to risk investing in a system that will be obsolete a year later. And you should not just automate current underwriting practices. Rather, these practices should be reexamined, redesigned, and tested to give the best decisions before being automated.
We're working jointly with lenders to develop a system that can be adapted to your individual needs and the technology you already have in place.
We believe the future is in open systems, rather than proprietary ones. We're determined to give you something you can integrate with your existing system rather than requiring you to scrap an investment you've already made.
Freddie Mac has invested two years in developing an entirely [automated] underwriting process, and we will be piloting our system in the first quarter of 1994.
As we introduce and applaud greater efficiency in the origination process, let's not forget that there are implications for investors.
There is no better illustration of those connections than what has happened this past year. The combination of competition, product innovation, and technological efficiencies have created an environment where consumers can refinance with a drop in interest rates of as little as 25 basis points.
This year, spreads have remained much tighter despite the heavy refinancing. Bureau of Census data show that in 1993, 400,000 families would have found mortgage credit unaffordable had spreads widened as they did during earlier refinancing waves.
Effects of Remics
A major reason that spreads have stayed tight this time has been Remics. But while Remics have expanded the investor base, they also magnify the effects of prepayment on certain investors.
Further, investors are seeking more information and disclosure about the mortgages as well as origination and servicing practices that may contribute to greater prepayment. It is critical that we uphold the highest standards of origination and servicing to maintain the integrity of the system and our securities.