Mortgage Daily Logo

Dismal Outlook for Real Estate Finance

Mortgage News

SAN DIEGO — The old joke that economists are like accountants, but without the sense of humor, certainly does not fit Doug Duncan, a familiar mortgage industry figure and a senior vice president at the Mortgage Bankers Association in Washington, D.C.

A native of Minnesota, Duncan possesses the dry wit millions of Americans have come to know (and sometimes love) from the likes of Garrison Keillor and his weekly Prairie Home Companion radio broadcast from Minneapolis.

So, it was, with witty cushioning that Duncan was able to deliver what amounted to devastating news to mortgage bankers and other industry professionals last week at a technology trade show in San Diego, when he presented his periodic economic analysis of what has happened and what is about to occur in the home finance business.

“Where I come from it was an honor when I was growing up to dance with Lawrence Welk at the end of his television show each week, when all those bubbles were coming up,” Duncan recalls with a sly grin. The nostalgic reference describes his view of today’s high-priced housing market consisting of “tiny bubbles.”

Despite the shtick, Duncan’s bottom line was nothing to laugh about: A shocking 56% fall-off in residential mortgage originations this year, compared to the high-water mark in 2003. Back then, $3.9 trillion worth of originations flooded lenders’ shops; this year that number will be a relative trickle of $2.2 trillion.

It means, says Duncan, that “more mid-size lenders will go out of business,” unable to maintain operations that have been fattened on years of sizzling sales. There will be layoffs too, the economist predicts, although some firms will attempt to hold on to workers in hopes that the downturn is not long-lasting.

Structural Changes
The overall housing finance market can expect to see structural changes as well: One a continuing, higher refinance percentage of originations; and the other, a continuing, higher percentage of adjustable-rate mortgages.

Indeed, nearly half of all subprime loans now are of the adjustable-rate variety. That has already attracted the attention of federal regulatory agencies concerned about “payment shock,” when rising rate resets occur. However, according to Duncan, the industry is ahead of the feds, already having built that factor into their spreadsheets.

Get ready for more delinquencies too. They will rise for three reasons, the economist postulates:

  • Half of all outstanding loans are less than three years old and have not hit their “delinquency peak period” of three-to-five years.

  • ARMs have a higher delinquency rate.

  • There are more subprime loans, which have historically higher delinquency rates.

On the technology front, some mortgage companies will limit their spending this year, worried about declining business and costly overhead. Others, however, will recognize an opportunity to better automate their processes in preparation for the next up cycle (although $2.2 trillion isn’t peanuts).

Duncan says technology is the reason for subprime growth. It has:

  • enabled lenders to run simulations to find the most profitable yields and assess the actual levels of risk;

  • drawn in significantly more capital from the secondary market

  • helped lenders segment loans/households and better determine ongoing distribution of needs;

  • improved automated underwriting thus making more time to work on exceptions (hard cases); and

  • lowered the cost threshold to serve nonprime borrowers.

Related Posts

Centex Home Equity Announces Name and Brand Change to National Mortgage, LLC

Third-Quarter 2012 Mortgage Litigation Index

Lawsuits involving excessive fees, servicing fees and loan fees beyond state maximums. Defendant Plaintiff Court Amount Overview Case Title Case Number Date Filed Date of Activity Link to Story Fannie Mae and Freddie Mac Orangeburg County, Richland County, South...

Centex Home Equity Announces Name and Brand Change to National Mortgage, LLC

Net Branch Lawsuits

Litigation involving net branch operations. Defendant Plaintiff Court Amount Overview Case Title Case Number Date Filed Date of Activity Link to Story PHH Mortgage Corp. Mathews Supreme Court of Virginia na Court held that the term "branch office" includes not only...

Centex Home Equity Announces Name and Brand Change to National Mortgage, LLC

Whistleblower Lawsuits

Litigation related to loan servicing, including escrow issues, transfer of servicing and servicing borrowers in bankruptcy and foreclosure.   Defendant Plaintiff Court Amount Overview Case Title Case Number Date Filed Date of Activity Link to Story Bank of...

Popular posts

How Long Does It Take to Refinance a Mortgage
How Long Does It Take to Refinance a Mortgage

So, you’re interested in refinancing your mortgage. Maybe you want some extra capital to do that home project you’ve always dreamed of, interest rates are nearing record lows, or you want to start consolidating debt. Regardless of the motivation behind the refinance,...

How Does Refinancing a Mortgage Work
How Does Refinancing a Mortgage Work

A home purchase is considered an investment, and a robust one at that. Savvy owners are constantly looking for new ways to reduce debt, save money, pay less in interest, and ultimately build equity. Refinancing is one way to leverage your investment and do just that....

What Does It Mean to Refinance Your Home
What Does It Mean to Refinance Your Home

You can think of refinancing your mortgage as a debt redo. Essentially, you’ll swap out the existing loan for a new one - ideally with better terms and conditions. Only this time it could help you save money on high mortgage payments, rather than just borrow it....

Setting up the Utilities in My New House
Setting up the Utilities in My New House

All the tedious, time-consuming paperwork has been signed, sealed, and delivered. Your belongings are packed into what seems like a million boxes and you have a solid plan to haul all your existing furniture to the new place. Just as your boxes and furniture need to...

When Is My First Mortgage Payment Due?
When Is My First Mortgage Payment Due?

Navigating your way through a brand-new mortgage loan can be a difficult task, especially for first-time homeowners.   After handing over a large sum of money for the down payment and closing costs, it’s important to pay attention to the timing of your first...

Newsletter

Don’t worry, we don’t spam