The Voice of San Diego Real Estate and A Serious Discussion on Mortgage Loans and Lending……The Past, The Present and The Furure
May 7th, 2008 categories: Buying San Diego Real Estate, San Diego Mortgage Banks and Loans Info, San Diego Real Estate, San Diego Real Estate News, Selling San Diego Real Estate
The Past – As practitioners in the real estate industry, not one of us is unfamiliar what with has already happened leading up to and the result of the sub prime crisis.
The Present – We are all pretty much in tune with the almost daily ideas being suggested by underwriters, mortgage purveyors, Congress and others. Everyone has ideas, testing the waters for that one stroke of brilliance that will act as a magic pill to solve the whole problem, one step at a time, one sweep at a time or even one huge brush stroke and make the problems all disappear.
The Future – Depending on who’s idea(s) win out, the course for the future of the mortgage market will probably be a lot different than it is today. That future could be filled with new opportunities as the skilled learn the new required steps for making it all seamlessly come together. Or it could be an ultra new “hybrid” type of market, a different set of rules for nearly every kind of situation imaginable, difficult to learn and even more so for the mortgage professionals to manage.
Taking a step back, let’s be clear where we were and why the market was so robust that it increased homeownership from a national average of approximately 50% to about 65% over a five or six year period. As the days roll on, that number is declining back though it is doubtful it will ever fall to anywhere near the 50% level again.
The perception during that run up period was that housing prices would continue to escalate forever and was reinforced daily by the statistics of skyrocketing sales and prices to match. With that no longer being our reality today, where are we now on that statistical scale? It has left us with falling home prices, fewer buyers in the market place, fewer home sales, and more uncertainty than in the past 20 years.
By the end of 2007 there were over 2 million foreclosure filings and 400,000 had already lost their homes. Now as bad as that sounds by the end of 2008, that may look like a ‘not so bad’ number comparatively speaking.
The collapsing market for mortgage backed securities has stung Wall Street and the many participating world markets alike. Many of the world’s largest investment banks have been crippled and now show strong resistance that they are not anxious to ever experience anything like this again.
This has brought us to our current problem of lending and the now over tightened guidelines that are making it more difficult every day for us to buy their way out of this mess.
Along the way, the ideas are still popping up in proposals for legislation, proposals for intermediate action plans and somewhere along the way the creation of a new hybrid lending process that will be showing up and likely lending ( no pun intended ) to even more confusion for the awaiting consumers.
So the new question that has been raised is this, shall we have a bailout and fix all this immediately at the taxpayer’s expense? There are those in Congress and candidates for the presidency who most certainly advocate it. There are others that feel that the problem is best solved in the longer term by allowing the systems in place to work through and eventually they feel that most of the problems will dissipate, though slowly.
If our new current majority of lawmakers (not especially well known for creating law that actually solves financial issues ) have their way they want a Bankruptcy law change. This more recent proposal, would allow homeowners to file for bankruptcy to reduce their mortgage to the properties current value and along with that provide for a change in the interest rates. The current administration in Washington does not agree to that kind of a proposal. However; If this is passed in a new administration, it will make for a profound impact on current contract law. If bankruptcy judges are allowed to rewrite mortgage contracts, lenders will likely see this as yet another level of risk in the way of making future loans. Especially if what is agreed to in a contract is longer the guarantee of the terms or the return for the lender ( more especially the investor of the securities that provides for the funding of these loans). Increasing the risks could only lead to higher rates and costs for all consumers.
Will this increased risk of having the terms change cause widespread increases in the interest rates on all mortgage loans? Will the market be able to adjust or will it rebel by changing the old definition of social mobility and began to paint yet another aspect of homeownership as more restricting and in so doing reduce the demand to such an extent as to bring down home values even further.
There likely is no one right answer and certainly no Magic Pill. As a society though, we can work together with insight and vision and eventually with patience this will all be a part of history. Whatever the pain , we must endure, whatever the price we must pay it. But we shouldn’t try to legislate it away nor to tax the problem away. For it will then have only been a temporary solution and this problem will surely revisit us again, and again and again.
Hi William,
Won’t it be interesting to look back in May 2009 and reflect…
Susie
Hi Susie, How nice of you to drop by. I am thinking the word might be closer to scary as opposed to interesting though,lol