Is Stimulation Just Economic Medicine and Did We Need Such A Big Dose?
So the spigot is in the "ON" position. America, let the "stimulation" begin. President O has prescribed the medicine for our economic maladies, so let's all just swallow and get cured.
But hold on. As anyone knows, swallowing medicine is tricky. It cures the ailment, sure. But an economy, just like a body, is a highly complex and delicate system. Swallowing medicine can sometimes have unintended consequences and side effects.
My experience tells me this: complex systems naturally know how to regulate themselves, if only given the chance.
But its too late for us. We have tampered with our economic system, justifying it this way: Look at the patient. He must be near death. One by one, the systems are failing. There is pain. There is acute suffering. There are loud demands to"DO SOMETHING, anything!".
Here, patient, quick! Swallow this medicine, and let's see what happens.
Is It Possible the Mortgage Industry Has Just Been Overdosed?
Frankly, the Federal Government is creating a boom that the mortgage industry may not be able to handle.
The refi boomlet, ALREADY in progress, is not on the radar screen of mainstream media YET. This is because the focus has been on stimulating BUYERS.
While buyers still need coaxing to believe this market is the opportunity of a lifetime, those who already own houses need no convincing that the time is right to refinance.
The train has left the station, and they are on board. Will there even be room left on the train when the medicine finally takes effect on buyers?
Please Remain On Hold. Your Mortgage Office Is Experiencing A High Volume of Loans.
It is projected that the mortgage industry will do two times the volume of business in 2009 as it did in 2008! Here's why:
- Lower rates have stimulated homeowners to dump their adjustable rate mortgages
- The ease of a "streamline" refinance has FHA loan holders stimulated to lower their rates
- Equity line holders have been stimulated to get rid of their useless frozen lines by wrapping them in a new mortgage
- The media's relentless focus on foreclosures, loan modifications, and mortgage restructures has created a subliminal message to homeowners: they must "do something to fix their mortgage".
- Existing homeowners see a window of opportunity to get repairs done on their homes that have been put on the back burner. They want cash out to fix things while contractors are not busy and working CHEAPLY.
And then the buyers show up, late to the party:
- About 300,000 more purchases are projected as a direct result of the first time tax buyer incentive.
- The very real possibility that the Federal Government will soon step in to unlock the Jumbo market by partially insuring jumbo loans.
- The intersecting of home prices at an 8 year low, and the government continuing to force rates down, bringing even more buyers into the market.
If This is A Feast, Why Does The Pantry Look Like a Famine is Going On?
Our own mortgage bank is handling a volume of epic proportions and the stimulus is only beginning. It is my belief that there will be a further purchase frenzy in the market as foreclosures begin to be absorbed, and as buyers panic realizing there are time limits on tax incentives.
Understand this:
- The mortgage industry is not prepared. They cut to the bone in 2008 and are woefully understaffed to handle this onslaught.
- The average loan is 1 1/2 times MORE DIFFICULT and far more time consuming to close than in 2003 (the last time we had a volume close to what we project this year)
- New appraisal rules (HVCC) going into effect in May will create further turmoil and delays right when the buying season begins, and the stimulus begins to sink in for most first time buyers.
My prediction for the rest of 2009?
Two words: Pure pandemonium.
Written by Janet Guilbault, Mortgage Lending Specialist Based Out of the San Francisco Bay Area.
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I don't know about the rest of you, but I just decided this is not the year to take a vacation.