Mortgage Industry Trends

SWF’s apparently have become the next savior for the unprecedented risks taken by financial and mortgage institutions during the last three to five years.  With over $4 trillion of investment capital increasing at an estimated $100 to $200 million per hour, these primarily Asian and Middle Eastern public investment pools represent a fresh source of much needed Western capitalization. 

These funds account for roughly 1.5% of the total worldwide investment capital, but it is projected that in less than 10 and perhaps in as little as five years they will grow to over 5% of the total – an increase of over 300%!  Why?  Just look at the cost of energy (> 1000% for oil during the last 10 years) and the imbalances of trade created by debt-laden, consumer driven nations. See chart below on SWF investments in financial institutions.

Impressive?  Very much so.  Part of a new economic global reality?  Probably.  Something to be feared and avoided?  Caution and due diligence will be required.  Let’s not forget the previous “darlings” that were prophesized as saviors – private equity, hedge funds, and SIV’s.  The lasting investment influence of SWF’s on operations and their services will not be as transparent as the opportunists believe – it’s never that simple.

These aforementioned darlings and now maligned “savoir instruments” have been major contributors to the pain we will continue to work out well into 2009.  It appears that as time marches forward so does our understanding of the downstream and market implications of these so-called wonder firms and their personnel.  The pain is far from over and the rush to use SWF’s is not the only answer.

In an upcoming report at the end of this month for the mortgage markets, we will release additional information and insights on what we believe to be the real uses for SWF’s in our markets.  The information compiled above is just one of 50 charts we have comprehensively covering both market and downstream implications.  Don’t just take my word on this -- check on the recent article from the Financial Times, The Lex Column, January 3, 2008 “The sovereign wealth put.”