This year will be less active for the nation's largest purchaser of residential mortgages because of an expected fall-off in the housing and mortgage markets, Federal National Mortgage Association President and Chairman Oakley Hunter said yesterday.
Hunter, addressing FNMA's annual stockholders' meeting, said the association's first quarter earnings were down by 23 percent as an example of the market's decline.
After the meeting, Hunter said he could not predict exactly how poorly the housing and mortgage market might fare, but he said, "We've been estimating housing starts at 1.7 million. But because of a drop in savings at savings and loans and thrift institutions in Paril and continuing in May, we're in the process of revising our estimates downward."
Housing starts slipped to a seasonally adjusted annual rate of 1.749 million units last month, 2 percent below the March level of 1.786 million, but 20 percent below last year's level.
The nation's savings and loans had an $800 million net outflow and mutual savings banks lost about $700 million. That is the first month since 1974 that the savings and loans, which provide most of the housing credit, had more withdrawals than deposits.
Last year "was a truly extraordinary year for the corporation, as it was for the housing and mortgage industries," Hunter told the stockholders. "This year, as everyone expected, housing activity has cooled somewhat, but the chill which accompained past credit cycles has not set in."
Hunter also predicted that interest rates will peak sometime in the third quarter. In response to a stockholder's question, FNMA director James J. O'Leary said that the prime interest rate will "move up to 12 percent and by the end of the year there will be a decline."
FNMA, chartered by Congress to be a self-sustaining, profit-making corporation, raises funds to purchase residential mortgages from primary lenders. It receives its income from the return on its portfolio of mortgages and the fees paid by lenders for forward commitments issued by FNMA to pruchase mortgages at predetermined, guaranteed yields.
The commitment fees tend to increase when mortgage lenders expect rising mortgage interest rates.
Hunter said that commitment fee inceome "decline sharply" during the first quarter, "largely because of the relative stability of interest rates during the period," and high borrowing costs. He said later that if interest rates peak in the third quarter ss he expects, "it will produce both continued high commitment activity for Fannine Mae (FNMA) until the peak is reached . . ."