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벤 버냉키 연준 의장 `잭슨홀` 연설 원문
09/01 00:12 [이데일리]
[뉴욕=이데일리 전설리특파원]
Housing, Housing Finance, and Monetary Policy
Over the years, Tom Hoenig and his colleagues at the Federal Reserve Bank of Kansas City have
done an excellent job of selecting interesting and relevant topics for this annual symposium.
I think I can safely say that this year they have outdone themselves. Recently, the subject of
housing finance has preoccupied financial-market participants and observers in the United
States and around the world. The financial turbulence we have seen had its immediate origins
in the problems in the subprime mortgage market, but the effects have been felt in the broader
mortgage market and in financial markets more generally, with potential consequences for the
performance of the overall economy.
In my remarks this morning, I will begin with some observations about recent market
developments and their economic implications. I will then try to place recent events in a
broader historical context by discussing the evolution of housing markets and housing finance
in the United States. In particular, I will argue that, over the years, institutional changes
in U.S. housing and mortgage markets have significantly influenced both the transmission of
monetary policy and the economy`s cyclical dynamics. As our system of housing finance
continues to evolve, understanding these linkages not only provides useful insights into the
past but also holds the promise of helping us better cope with the implications of future
developments.
Recent Developments in Financial Markets and the Economy
I will begin my review of recent developments by discussing the housing situation. As you
know, the downturn in the housing market, which began in the summer of 2005, has been sharp.
Sales of new and existing homes have declined significantly from their mid-2005 peaks and have
remained slow in recent months. As demand has weakened, house prices have decelerated or ev
en declined by some measures, and homebuilders have scaled back their construction of new
homes. The cutback in residential construction has directly reduced the annual rate of U.S.
economic growth about 3/4 percentage point on average over the past year and a half. Despite
the slowdown in construction, the stock of unsold new homes remains quite elevated relative to
sales, suggesting that further declines in homebuilding are likely.
The outlook for home sales and construction will also depend on unfolding developments in
mortgage markets. A substantial increase in lending to nonprime borrowers contributed to the
bulge in residential investment in 2004 and 2005, and the tightening of credit conditions for
these borrowers likely accounts for some of the continued softening in demand we have seen
this year. As I will discuss, recent market developments have resulted in additional
tightening of rates and terms for nonprime borrowers as well as for potential borrowers
through `jumbo` mortgages. Obviously, if current conditions persist in mortgage markets, the
demand for homes could weaken further, with possible implications for the broader economy. We
are following these developments closely.
As house prices have softened, and as interest rates have risen from the low levels of a
couple of years ago, we have seen a marked deterioration in the performance of nonprime
mortgages. The problems have been most severe for subprime mortgages with adjustable rates:
the proportion of those loans with serious delinquencies rose to about 13-1/2 percent in June,
more than double the recent low seen in mid-2005.1 The adjustable-rate subprime mortgages
originated in late 2005 and in 2006 have performed the worst, in part because of slippage in
underwriting standards, reflected for example in high loan-to-value ratios and incomplete
documentation. With many of these borrowers facing their first interest rate resets in coming
quarters, and with softness in house prices expected to continue to impede refinancing, del
inquencies among this class of mortgages are likely to rise further. Apart from adjustable-
rate subprime mortgages, however, the deterioration in performance has been less pronounced,
at least to this point. For subprime mortgages with fixed rather than variable rates, for
example, serious delinquencies have been fairly stable at about 5-1/2 percent. The rate of
serious delinquencies on alt-A securitized pools rose to nearly 3 percent in June, from a low
of less than 1 percent in mid-2005. Delinquency rates on prime jumbo mortgages have also
risen, though they are lower than those for prime conforming loans, and both rates are below 1
percent.
Investors` concerns about mortgage credit performance have intensified sharply in recent
weeks, reflecting, among other factors, worries about the housing market and the effects of
impending interest-rate resets on borrowers` ability to remain current. Credit spreads on new
securities backed by subprime mortgages, which had jumped earlier this year, rose
significantly more in July. Issuance of such securities has been negligible since then, as
dealers have faced difficulties placing even the AAA-rated tranches. Issuance of securities
backed by alt-A and prime jumbo mortgages also has fallen sharply, as investors have evidently
become concerned that the losses associated with these types of mortgages may be higher than
had been expected.
With securitization impaired, some major lenders have announced the cancellation of their
adjustable-rate subprime lending programs. A number of others that specialize in
nontraditional mortgages have been forced by funding pressures to scale back or close down.
Some lenders that sponsor asset-backed commercial paper conduits as bridge financing for their
mortgage originations have been unable to `roll` the maturing paper, forcing them to draw on
back-up liquidity facilities or to exercise options to extend the maturity of their paper. As
a result of these developments, borrowers face noticeably tighter terms and standards
for all but conforming mortgages.
As you know, the financial stress has not been confined to mortgage markets. The markets for
asset-backed commercial paper and for lower-rated unsecured commercial paper market also have
suffered from pronounced declines in investor demand, and the associated flight to quality has
contributed to surges in the demand for short-dated Treasury bills, pushing T-bill rates down
sharply on some days. Swings in stock prices have been sharp, with implied price volatilities
rising to about twice the levels seen in the spring. Credit spreads for a range of financial
instruments have widened, notably for lower-rated corporate credits. Diminished demand for
loans and bonds to finance highly leveraged transactions has increased some banks` concerns
that they may have to bring significant quantities of these instruments onto their balance
sheets. These banks, as well as those that have committed to serve as back-up facilities to
commercial paper programs, have become more protective of their liquidity and balance-sheet
capacity.
Although this episode appears to have been triggered largely by heightened concerns about
subprime mortgages, global financial losses have far exceeded even the most pessimistic
projections of credit losses on those loans. In part, these wider losses likely reflect
concerns that weakness in U.S. housing will restrain overall economic growth. But other
factors are also at work. Investor uncertainty has increased significantly, as the difficulty
of evaluating the risks of structured products that can be opaque or have complex payoffs has
become more evident. Also, as in many episodes of financial stress, uncertainty about possible
forced sales by leveraged participants and a higher cost of risk capital seem to have made
investors hesitant to take advantage of possible buying opportunities. More generally,
investors may have become less willing to assume risk. Some increase in the premiums that
investors require to take risk is probably a healthy develop
ment on the whole, as these premiums have been exceptionally low for some time. However, in
this episode, the shift in risk attitudes has interacted with heightened concerns about credit
risks and uncertainty about how to evaluate those risks to create significant market stress.
On the positive side of the ledger, we should recognize that past efforts to strengthen
capital positions and the financial infrastructure place the global financial system in a
relatively strong position to work through this process.
In the statement following its August 7 meeting, the Federal Open Market Committee (FOMC)
recognized that the rise in financial volatility and the tightening of credit conditions for
some households and businesses had increased the downside risks to growth somewhat but
reiterated that inflation risks remained its predominant policy concern. In subsequent days,
however, following several events that led investors to believe that credit risks might be
larger and more pervasive than previously thought, the functioning of financial markets became
increasingly impaired. Liquidity dried up and spreads widened as many market participants
sought to retreat from certain types of asset exposures altogether.
Well-functioning financial markets are essential for a prosperous economy. As the nation`s
central bank, the Federal Reserve seeks to promote general financial stability and to help to
ensure that financial markets function in an orderly manner. In response to the developments
in the financial markets in the period following the FOMC meeting, the Federal Reserve
provided reserves to address unusual strains in money markets. On August 17, the Federal
Reserve Board announced a cut in the discount rate of 50 basis points and adjustments in the
Reserve Banks` usual discount window practices to facilitate the provision of term financing
for as long as thirty days, renewable by the borrower. The Federal Reserve also took a number
of supplemental actions, such as cutting the fee charged for lending Treas
ury securities. The purpose of the discount window actions was to assure depositories of the
ready availability of a backstop source of liquidity. Even if banks find that borrowing from
the discount window is not immediately necessary, the knowledge that liquidity is available
should help alleviate concerns about funding that might otherwise constrain depositories from
extending credit or making markets. The Federal Reserve stands ready to take additional
actions as needed to provide liquidity and promote the orderly functioning of markets.
It is not the responsibility of the Federal Reserve--nor would it be appropriate--to protect
lenders and investors from the consequences of their financial decisions. But developments in
financial markets can have broad economic effects felt by many outside the markets, and the
Federal Reserve must take those effects into account when determining policy. In a statement
issued simultaneously with the discount window announcement, the FOMC indicated that the
deterioration in financial market conditions and the tightening of credit since its August 7
meeting had appreciably increased the downside risks to growth. In particular, the further
tightening of credit conditions, if sustained, would increase the risk that the current
weakness in housing could be deeper or more prolonged than previously expected, with possible
adverse effects on consumer spending and the economy more generally.
The incoming data indicate that the economy continued to expand at a moderate pace into the
summer, despite the sharp correction in the housing sector. However, in light of recent
financial developments, economic data bearing on past months or quarters may be less useful
than usual for our forecasts of economic activity and inflation. Consequently, we will pay
particularly close attention to the timeliest indicators, as well as information gleaned from
our business and banking contacts around the country. Inevitably, the uncertainty surrounding
the outlook will be greater than nor
mal, presenting a challenge to policymakers to manage the risks to their growth and price
stability objectives. The Committee continues to monitor the situation and will act as needed
to limit the adverse effects on the broader economy that may arise from the disruptions in
financial markets.
Beginnings: Mortgage Markets in the Early Twentieth Century
Like us, our predecessors grappled with the economic and policy implications of innovations
and institutional changes in housing finance. In the remainder of my remarks, I will try to
set the stage for this weekend`s conference by discussing the historical evolution of the
mortgage market and some of the implications of that evolution for monetary policy and the
economy.
The early decades of the twentieth century are a good starting point for this review, as
urbanization and the exceptionally rapid population growth of that period created a strong
demand for new housing. Between 1890 and 1930, the number of housing units in the United
States grew from about 10 million to about 30 million; the pace of homebuilding was
particularly brisk during the economic boom of the 1920s.
Remarkably, this rapid expansion of the housing stock took place despite limited sources of
mortgage financing and typical lending terms that were far less attractive than those to which
we are accustomed today. Required down payments, usually about half of the home`s purchase
price, excluded many households from the market. Also, by comparison with today`s standards,
the duration of mortgage loans was short, usually ten years or less. A `balloon` payment at
the end of the loan often created problems for borrowers.2
High interest rates on loans reflected the illiquidity and the essentially unhedgeable
interest rate risk and default risk associated with mortgages. Nationwide, the average spread
between mortgage rates and high-grade corporate bond yields during the 1920s was about 200
basis points, compared with about 50 basis points on average
since the mid-1980s. The absence of a national capital market also produced significant
regional disparities in borrowing costs. Hard as it may be to conceive today, rates on
mortgage loans before World War I were at times as much as 2 to 4 percentage points higher in
some parts of the country than in others, and even in 1930, regional differences in rates
could be more than a full percentage point.3
Despite the underdevelopment of the mortgage market, homeownership rates rose steadily after
the turn of the century. As would often be the case in the future, government policy provided
some inducement for homebuilding. When the federal income tax was introduced in 1913, it
included an exemption for mortgage interest payments, a provision that is a powerful stimulus
to housing demand even today. By 1930, about 46 percent of nonfarm households owned their own
homes, up from about 37 percent in 1890.
The limited availability of data prior to 1929 makes it hard to quantify the role of housing
in the monetary policy transmission mechanism during the early twentieth century. Comparisons
are also complicated by great differences between then and now in monetary policy frameworks
and tools. Still, then as now, periods of tight money were reflected in higher interest rates
and a greater reluctance of banks to lend, which affected conditions in mortgage markets.
Moreover, students of the business cycle, such as Arthur Burns and Wesley Mitchell, have
observed that residential construction was highly cyclical and contributed significantly to
fluctuations in the overall economy (Burns and Mitchell, 1946). Indeed, if we take the
somewhat less reliable data for 1901 to 1929 at face value, real housing investment was about
three times as volatile during that era as it has been over the past half-century.
During the past century we have seen two great sea changes in the market for housing finance.
The first of these was the product of the New Deal. The second arose from financial innovation
and a series o
f crises from the 1960s to the mid-1980s in depository funding of mortgages. I will turn first
to the New Deal period.
The New Deal and the Housing Market
The housing sector, like the rest of the economy, was profoundly affected by the Great
Depression. When Franklin Roosevelt took office in 1933, almost 10 percent of all homes were
in foreclosure (Green and Wachter, 2005), construction employment had fallen by half from its
late 1920s peak, and a banking system near collapse was providing little new credit. As in
other sectors, New Deal reforms in housing and housing finance aimed to foster economic
revival through government programs that either provided financing directly or strengthened
the institutional and regulatory structure of private credit markets.
Actually, one of the first steps in this direction was taken not by Roosevelt but by his
predecessor, Herbert Hoover, who oversaw the creation of the Federal Home Loan Banking System
in 1932. This measure reorganized the thrift industry (savings and loans and mutual savings
banks) under federally chartered associations and established a credit reserve system modeled
after the Federal Reserve. The Roosevelt administration pushed this and other programs
affecting housing finance much further. In 1934, his administration oversaw the creation of
the Federal Housing Administration (FHA). By providing a federally backed insurance system for
mortgage lenders, the FHA was designed to encourage lenders to offer mortgages on more
attractive terms. This intervention appears to have worked in that, by the 1950s, most new
mortgages were for thirty years at fixed rates, and down payment requirements had fallen to
about 20 percent. In 1938, the Congress chartered the Federal National Mortgage Association,
or Fannie Mae, as it came to be known. The new institution was authorized to issue bonds and
use the proceeds to purchase FHA mortgages from lenders, with the objectives of increasing the
supply of mortgage credit and reducing variat
ions in the terms and supply of credit across regions.4
Shaped to a considerable extent by New Deal reforms and regulations, the postwar mortgage
market took on the form that would last for several decades. The market had two main sectors.
One, the descendant of the pre-Depression market sector, consisted of savings and loan
associations, mutual savings banks, and, to a lesser extent, commercial banks. With financing
from short-term deposits, these institutions made conventional fixed-rate long-term loans to
homebuyers. Notably, federal and state regulations limited geographical diversification for
these lenders, restricting interstate banking and obliging thrifts to make mortgage loans in
small local areas--within 50 miles of the home office until 1964, and within 100 miles after
that. In the other sector, the product of New Deal programs, private mortgage brokers and
other lenders originated standardized loans backed by the FHA and the Veterans` Administration
(VA). These guaranteed loans could be held in portfolio or sold to institutional investors
through a nationwide secondary market.
No discussion of the New Deal`s effect on the housing market and the monetary transmission
mechanism would be complete without reference to Regulation Q--which was eventually to
exemplify the law of unintended consequences. The Banking Acts of 1933 and 1935 gave the
Federal Reserve the authority to impose deposit-rate ceilings on banks, an authority that was
later expanded to cover thrift institutions. The Fed used this authority in establishing its
Regulation Q. The so-called Reg Q ceilings remained in place in one form or another until the
mid-1980s.5
The original rationale for deposit ceilings was to reduce `excessive` competition for bank
deposits, which some blamed as a cause of bank failures in the early 1930s. In retrospect, of
course, this was a dubious bit of economic analysis. In any case, the principal effects of the
ceilings were not on bank competition but on the supply of credit. With the
ceilings in place, banks and thrifts experienced what came to be known as disintermediation--
an outflow of funds from depositories that occurred whenever short-term money-market rates
rose above the maximum that these institutions could pay. In the absence of alternative
funding sources, the loss of deposits prevented banks and thrifts from extending mortgage
credit to new customers.
The Transmission Mechanism and the New Deal Reforms
Under the New Deal system, housing construction soared after World War II, driven by the
removal of wartime building restrictions, the need to replace an aging housing stock, rapid
family formation that accompanied the beginning of the baby boom, and large-scale internal
migration. The stock of housing units grew 20 percent between 1940 and 1950, with most of the
new construction occurring after 1945.
In 1951, the Treasury-Federal Reserve Accord freed the Fed from the obligation to support
Treasury bond prices. Monetary policy began to focus on influencing short-term money markets
as a means of affecting economic activity and inflation, foreshadowing the Federal Reserve`s
current use of the federal funds rate as a policy instrument. Over the next few decades,
housing assumed a leading role in the monetary transmission mechanism, largely for two
reasons: Reg Q and the advent of high inflation.
The Reg Q ceilings were seldom binding before the mid-1960s, but disintermediation induced by
the ceilings occurred episodically from the mid-1960s until Reg Q began to be phased out
aggressively in the early 1980s. The impact of disintermediation on the housing market could
be quite significant; for example, a moderate tightening of monetary policy in 1966
contributed to a 23 percent decline in residential construction between the first quarter of
1966 and the first quarter of 1967. State usury laws and branching restrictions worsened the
episodes of disintermediation by placing ceilings on lending rates and limiting the flow of
funds between loc
al markets. For the period 1960 to 1982, when Reg Q assumed its greatest importance,
statistical analysis shows a high correlation between single-family housing starts and the
growth of small time deposits at thrifts, suggesting that disintermediation effects were
powerful; in contrast, since 1983 this correlation is essentially zero.6
Economists at the time were well aware of the importance of the disintermediation phenomenon
for monetary policy. Frank de Leeuw and Edward Gramlich highlighted this particular channel in
their description of an early version of the MPS macroeconometric model, a joint product of
researchers at the Federal Reserve, MIT, and the University of Pennsylvania (de Leeuw and
Gramlich, 1969). The model attributed almost one-half of the direct first-year effects of
monetary policy on the real economy--which were estimated to be substantial--to
disintermediation and other housing-related factors, despite the fact that residential
construction accounted for only 4 percent of nominal gross domestic product (GDP) at the time.
As time went on, however, monetary policy mistakes and weaknesses in the structure of the
mortgage market combined to create deeper economic problems. For reasons that have been much
analyzed, in the late 1960s and the 1970s the Federal Reserve allowed inflation to rise, which
led to corresponding increases in nominal interest rates. Increases in short-term nominal
rates not matched by contractually set rates on existing mortgages exposed a fundamental
weakness in the system of housing finance, namely, the maturity mismatch between long-term
mortgage credit and the short-term deposits that commercial banks and thrifts used to finance
mortgage lending. This mismatch led to a series of liquidity crises and, ultimately, to a rash
of insolvencies among mortgage lenders. High inflation was also ultimately reflected in high
nominal long-term rates on new mortgages, which had the effect of `front loading` the real
payments made by holders of long-term, fixed-rate
mortgages. This front-loading reduced affordability and further limited the extension of
mortgage credit, thereby restraining construction activity. Reflecting these factors, housing
construction experienced a series of pronounced boom and bust cycles from the early 1960s
through the mid-1980s, which contributed in turn to substantial swings in overall economic
growth.
The Emergence of Capital Markets as a Source of Housing Finance
The manifest problems associated with relying on short-term deposits to fund long-term
mortgage lending set in train major changes in financial markets and financial instruments,
which collectively served to link mortgage lending more closely to the broader capital
markets. The shift from reliance on specialized portfolio lenders financed by deposits to a
greater use of capital markets represented the second great sea change in mortgage finance,
equaled in importance only by the events of the New Deal.
Government actions had considerable influence in shaping this second revolution. In 1968,
Fannie Mae was split into two agencies: the Government National Mortgage Association (Ginnie
Mae) and the re-chartered Fannie Mae, which became a privately owned government-sponsored
enterprise (GSE), authorized to operate in the secondary market for conventional as well as
guaranteed mortgage loans. In 1970, to compete with Fannie Mae in the secondary market,
another GSE was created--the Federal Home Loan Mortgage Corporation, or Freddie Mac. Also in
1970, Ginnie Mae issued the first mortgage pass-through security, followed soon after by
Freddie Mac. In the early 1980s, Freddie Mac introduced collateralized mortgage obligations
(CMOs), which separated the payments from a pooled set of mortgages into `strips` carrying
different effective maturities and credit risks. Since 1980, the outstanding volume of GSE
mortgage-backed securities has risen from less than $200 billion to more than $4 trillion
today. Alongside these developments came the establishment of pri
vate mortgage insurers, which competed with the FHA, and private mortgage pools, which bundled
loans not handled by the GSEs, including loans that did not meet GSE eligibility criteria--so
-called nonconforming loans. Today, these private pools account for around $2 trillion in
residential mortgage debt.
These developments did not occur in time to prevent a large fraction of the thrift industry
from becoming effectively insolvent by the early 1980s in the wake of the late-1970s surge in
inflation.7 In this instance, the government abandoned attempts to patch up the system and
instead undertook sweeping deregulation. Reg Q was phased out during the 1980s; state usury
laws capping mortgage rates were abolished; restrictions on interstate banking were lifted by
the mid-1990s; and lenders were permitted to offer adjustable-rate mortgages as well as
mortgages that did not fully amortize and which therefore involved balloon payments at the end
of the loan period. Critically, the savings and loan crisis of the late 1980s ended the
dominance of deposit-taking portfolio lenders in the mortgage market. By the 1990s, increased
reliance on securitization led to a greater separation between mortgage lending and mortgage
investing even as the mortgage and capital markets became more closely integrated. About 56
percent of the home mortgage market is now securitized, compared with only 10 percent in 1980
and less than 1 percent in 1970.
In some ways, the new mortgage market came to look more like a textbook financial market, with
fewer institutional `frictions` to impede trading and pricing of event-contingent securities.
Securitization and the development of deep and liquid derivatives markets eased the spreading
and trading of risk. New types of mortgage products were created. Recent developments
notwithstanding, mortgages became more liquid instruments, for both lenders and borrowers.
Technological advances facilitated these changes; for example, computerization and innovations
such as credit scores reduced
the costs of making loans and led to a `commoditization` of mortgages. Access to mortgage
credit also widened; notably, loans to subprime borrowers accounted for about 13 percent of
outstanding mortgages in 2006.
I suggested that the mortgage market has become more like the frictionless financial market of
the textbook, with fewer institutional or regulatory barriers to efficient operation. In one
important respect, however, that characterization is not entirely accurate. A key function of
efficient capital markets is to overcome problems of information and incentives in the
extension of credit. The traditional model of mortgage markets, based on portfolio lending,
solved these problems in a straightforward way: Because banks and thrifts kept the loans they
made on their own books, they had strong incentives to underwrite carefully and to invest in
gathering information about borrowers and communities. In contrast, when most loans are
securitized and originators have little financial or reputational capital at risk, the danger
exists that the originators of loans will be less diligent. In securitization markets,
therefore, monitoring the originators and ensuring that they have incentives to make good
loans is critical. I h
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