Happy New Year?
Due to the holidays, year end house cleaning and illness, I haven’t posted in a couple of weeks. Well the new year is here and having taken care of the above issues, I am back to posting.
The question mark in the post title is no accident. This will be, without a doubt, the most challenging year we have ever faced in the mortgage industry. Will it be happy? Only time will tell.
The mortgage industry continues to shrink with the lender implode list reaching 210. Subprime product offerings remain slim. Essentially, there is no subprime as we once knew it. I have clients and friends that I cannot help due to products being discontinued. It literally keeps me up at night, knowing that a year ago, their problems would be solved but now they will only get worse and there is nothing I can do about it.
Alt A isn’t much better. The jumbo price spreads remain unusually large and product offerings in this class of loans are shrinking like the subprime offerings.
That leaves conventional loans. Fannie and Freddie pricing is pretty attractive right now. However, underwriting in this class of loans has tightened significantly as well. We are not an FHA shop so I won’t address that market other than to say, it’s not a panacea for the ills the industry faces, not that anyone said it was.
Let’s not forget that mortgage lending is collateral based. The collateral being real estate, the value of which is plummeting at record paces. Without adequate collateral, mortgages cannot be made. I don’t know how far real estate prices will fall but I can tell you this. Until the mortgage industry is repaired, values will decline in a historic manner.
In order for this year to be good for the mortgage industry, the process of securitizing mortgages must be repaired. The mortgage industry cannot survive without it. Real estate prices will need firm up as well. However as long as the mortgage industry is broken, that will not happen.
Another ingredient for a good year is for our government leaders to get a clue about what is going on and how to deal with it. Every government action to date clearly miss the marks needed to turn the situation around. Their so called solutions reveal their total lack of understanding of the situation at hand. It’s all show. “I care so re-elect me.” Meanwhile their actions will shrink an already devastated industry making consumer choices fewer and more expensive. It’s good thing they care.
Let me just say that when I started this blog it wasn’t my intention to become a gloom and doomer. That isn’t my nature. I am and always have been a “can do”, optimistic guy. But I am foremost a realist. I accept reality at face value in order to deal with it efficiently. The reason for the negativity in this blog is because in reality, we are faced with a very negative outlook.
There’s more to come. So let’s work at making 2008 a happy year. Good luck, we are all going to need it.
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