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Camera-ready art of "Regional
Outlook" (562Kb PDF file - PDF help
or hard copy)
Regional Perspectives
Metropolitan economies in the Dallas Region have slowed significantly as a result of the U.S. recession and in the aftermath of the September 11 attacks--Employment growth for the Region in 2002 is likely to slow to its lowest rate since the mid-1980s.
The Denver and Austin MSAs may be vulnerable to weakening housing price growth because of overbuilding and sharp declines in employment growth--Housing price growth in other MSAs with employment concentrations in troubled industries could be adversely affected also.
Traditionally, residential mortgages have proven to be a lower risk type of lending--However, risk in mortgage lending may be increasing as slowing home prices contribute to leaner collateral positions. See page 3.
By the Dallas Region Staff
In Focus This Quarter
Housing Market Has Held Up Well in This Recession, but Some Issues Raise Concern--Recent trends in mortgage underwriting are of particular interest, as an estimated $2 trillion in mortgage debt, approximately one-third of the total outstanding, was underwritten during 2001. Nonconstruction residential mortgages traditionally have represented one of the better-performing loan classes during prior downturns. The level of credit risk, however, may be higher this time around because the mortgage lending business has changed since the last downturn. This article examines these changes, including increased involvement by insured institutions in the higher-risk subprime credit market, the acceptance of higher initial leverage on home purchases, and greater use of automated underwriting and collateral valuation processes, which have not been recession-tested. Home price softening could have an adverse effect on residential construction and development (C&D) and mortgage portfolios. In the aggregate, the level of risk appears modest. However, insured institutions with significant C&D loan exposures in markets that experienced ongoing residential construction during 2001, despite slowing local economies, are at higher risk. Weakening home prices could hurt loan quality in selected markets. The San Francisco Bay Area stands out as a place to watch in this regard.
By Scott Hughes, Regional Economist
Judy Plock, Senior Financial Analyst
Joan Schneider, Regional Economist
Norm Williams, Regional Economist
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