Mortgage Risk Summit Panel: Stress Testing and CECL Implementation

Michael Youngblood, Ph.D.

June 2nd, 2017

Ronald Reagan Building and International Trade Center, Washington, D.C.


Dr. Michael Youngblood, Principal and Co-founder of Five Bridges Advisors, participated in a panel on stress testing at the Mortgage Bankers Association’s 2017 Mortgage Risk Summit. He regarded interest rate risk as the greatest risk to the mortgage markets in the year ahead. If monetary policy continues to tighten, the mortgage markets may encounter not only higher interest rates but also an inverted yield curve, which will weigh more heavily on shorter assets and liabilities. Reduction in the Federal Reserve’s holdings of $2.6 trillion of mortgage-backed securities may weaken market conditions and elevate mortgage rates. Participants should pay close attention to the key rate durations of mortgage loans and securities.


In addition, Dr. Youngblood highlighted the risks arising from geographic differences in local economic conditions. No two metropolitan areas respond identically to higher interest rates, and responses may vary widely across zip code areas within metropolitan areas. Market participants should examine the sensitivity to interest rates of mortgage loans by zip code concentration.