There was an explosion of mortgage products on the scene from 2000 to 2005, going from hundreds to tens-of-thousands.
ANYONE could get a loan, even dead people.
On 3/10/2007 it should be no secret that the mortgage world is on the verge of an epic correction. Fraud permeates the industry from the top down, with New Century looking to be the early mover under the ‘debacle’ category, although many more are sure to follow.
Reading any of the insider trades shows a list of bankers and
wholesalers who are exercising damage control, by making major changes
to their underwriting guidelines, closing shop, and/or settling
lawsuits on the cheap now. It’s all of the biggest names in the industry.
The Problem:
The dream of homeownership was afforded to alot of people who had no business buying a home. State your terms (with alot of coaching), loan was delivered.
Brokers, Bankers, and the willing consumers should shoulder the blame. Some people were preyed upon, others played the game- Silently rationalizing the ramifications.
The Fallout.
- Couple wholesale lenders tightening up their qualifying guidelines substantially (or eliminating them all together), with a record $1,000,000,000,000 in maturing Adjustable Rate Mortgages, and you get an ENORMOUS pool of demand with no supply. The products many will need don’t exist anymore.
- The Indexes: LIBOR, MTA, CMT, COFI, COSI, MBS Market, etc are all categorically and substantially higher than they were 3 years ago all but guaranteeing a minimum 1% rate increase, and as much as 4%. Refinancing into a lower rate without hi costs will be near impossible.
- The Foreclosure Boom. As with any market correction, someone stands to benefit- If you subscribe to the logic that one should ‘buy’ in a down market and ’sell’ in an up market, it’s about to be a Bear of time in the real estate investment arena.
An imminent foreclosure boom means property is about to go on sale in a big way for the financially literate (which is shockingly low in our First World Nation) who are in position to snap up the deals; make no mistake, there are droves awaiting this scenario to play out. It’s the 90/10 rule in full effect.
As these ‘discounted sales’ are recorded future values become deflated
as well, appraisers use recently sold comparable homes as the basis for
establishing current values.
Ive been called a nay-sayer and a fear monger...alas the prophecy is coming true ;)
Pop
*bursting sound*
Also see:
Mortgage Industry’s Internal Civil War
-
Interest Rate Pricing. The Disturbing Truth
Deceptive Mortgage Marketing Tactics
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FBI ISSUES MORTGAGE FRAUD NOTICE IN CONJUNCTION WITH MORTGAGE BANKERS ASSOCIATION
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“Mortgage brokers call for study of foreclosures” Inman Real Estate News.
“Feeling
the icy wind of stronger regulation on their necks and fearing the
worst from agitated regulators bent on layering on even more
protections for consumers, mortgage brokers are calling for what they
hope will be pre-emptive action in the form of an independent
government inquiry into the causal factors of the rising foreclosures
taking place across the country.”
-
“Regulatory fire may torch lending business” Inman Real Estate News
“Fear
of fraud is fueling a rush of new state laws intended to protect
consumers. But in its path, this blazing regulatory fire may torch many
financial services providers unable to keep up with all the new
requirements.
Thx to mortgage-x.com for their chart :)
;)
;)
I agree that there are corrections taking place in the market due to the following factors:
Increased payments with adjustable rate subprime products that were sold on the "get into the home now and refinance into better terms in a few years" idea. Many of those borrowers still kept their poor credit patterns and will have nowhere to go to refinance.
An increase in inventory due to an inability to afford the mortgage payments, when rent is still cheapter (minus the tax benefits of interest writeoffs)
On the plus, there will be more renters, so the investor market will come back around
Mortgage rates are still very good in the scheme of things. But 100% financing will cease to exist and many underwriters will want 10% down payments to show some personal interest in the property to decrease the likihood of foreclosure.
Good post!
Scott