This is me from the Arizona Republic (permanent link):
Mortgage meltdown? The end of the world has been delayed again
If you watch the TV news, you can’t miss the video clips of financial pundits screeching about the imminent collapse of the mortgage industry. In fact, the world probably cannot end more often than once or twice a day, but it’s worthwhile to remember that television is an entertainment medium. Financial news is inherently boring — unless it’s reported by a shrill demagogue.
So what’s really going on?
Investors are pulling the plug on the most liberal — or most willfully gullible — mortgage underwriting firms. Investment banks that bought or brokered portfolios of shaky loans are also suffering.
Does this mean you can’t get a home loan? Not at all. You just need verifiable income, good credit and a down payment. That wouldn’t even sound odd if we had not lived through 2005, when all you needed was a reliable pulse.
What really happened in the home loan market? There was so much money available, and homes were appreciating so quickly, that some lenders stopped worrying about the financial qualifications of borrowers.
Has there been a surge in foreclosures? Yes. Had there been a substantial number of loans made to high-risk borrowers? Yes. We’re paying the piper now, that’s all.
There is still plenty of money in the mortgage market, but guidelines are stricter. Nothing-down loans are harder to obtain, as are stated-income loans. Some lenders are charging higher rates for jumbo loans — amounts over $417,000. But the rates for a 30-year conforming fixed-rate mortgage — the bread-and-butter home loan — are actually down. This fact will have been omitted by the demagogues on TV.
While things shake out, sellers will want to stay on top of their buyers’ loans, and buyers might want to ask their lenders to submit their files to more than one underwriter. Some parts of the Valley are suffering more than others, but buyers are buying, sellers are selling and home values are holding up fairly well through the down-turn. It would seem that the end of the world, contrary to televised reports, has been delayed yet again.
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Michael Cook says:
“The end of the world has been delayed again”
But for how long???
August 10, 2007 — 1:07 pm
BR says:
I don’t think you could have put it any better. When I saw whats his name freaking out on cnbc, I had to ask myself- is this guy heavy into subprime? sounds like maybe? Even Cavuto is guarded, but pointing out positive strokes- It just makes sense to walk through this and let it shake out, I would venture to say once the dead players are out, others will step in to cash in- isn’t that how markets work? The market is way to powerful right now to not pick itself up, dust off, and keep humming.
Stay positive, stay on focus, this is not a time to hide under the cabinet.
Michael, I know you think I’m crazy- duly noted.
August 10, 2007 — 3:13 pm
Mike says:
Seriously, this is a good post, but if you agree with it, you must also agree with the idea that we have to & will give up some if not all of the appreciation gained in the market since 2005. That appreciation was driven by demand created from these mortgage products which were not sustainable and no longer available.
In order for the market to be driven back up based on standard mortgage products with documentation and downpayments, prices will have to adjust downwards first. If I was buying right now, I’d wait on the sidelines to see 2005 or earlier pricing before buying.
August 10, 2007 — 6:35 pm
Greg Swann says:
In Phoenix, right now, the average suburban tract home is selling at its May 2005 price. I have no opinion about your projections — nor anyone else’s — but that’s what’s happening here right now.
August 10, 2007 — 6:43 pm
Karl Christen says:
With mortgage sites like http://www.mortgage-implode.com, you wonder why some people think the end is going to hit them square in the pants. Furthermore, it’s unsettling to see rates changing hour by hour for day’s in regards to these crapy loan programs. But I do agree with you, that reality isn’t as bad as the pundit’s on CNBC wish you to believe. The drama, the panic, it’s great television. But I was relieved when the Fed injected that 40 billion into the market. Even though deep down I knew it was mostly to calm everyone down. Human nature is to panic when it comes to the unknown, and it’s always nice to see precieved experts (like Bernake) or Mozillo speak calm words of reassurance, when on the other hand the internet blog’s are screaming that the end is nigh….
Was that a little wordy? Sorry about that, anyway have a great weekend.
August 11, 2007 — 12:17 am
Michael Cook says:
I think Greg makes a good ying to my doomsday yang. For the record I understand that subprime and alt-a mortgages represent a small number of loans outstanding.
The question I poise is how do you keep consumer confidence up when most factors financial factors are going against them. Increasing interest rates, weaking economy, and tightening lending policies. Even though subprime lending is a small portion of loans, banks have learned a hard lesson about their pricing of risk. This means increasing interest rates and making it tougher for everyone to get loans.
Finally, putting all that together with the fact that arms are readjusting and many consumers have already refinanced, you get quite a vacuum in the real estate buying department. The problem with Greg’s analysis is that it looks at only one factor in isolation. The problem is that there are a lot of factors coming together.
August 11, 2007 — 6:44 am
C. Goodman says:
It is wise never to be lulled into complacency concerning a financial world end. Despite the more accurate behind the scene activities in all the markets, positive as they may appear, there are more devastating consequences just ahead. That the news media tie the success of the current multibillion dollar bailout with getting control of the foreclosure chaos, shows there has never been any real intent to solve this financial mess to begin with. The threads that hold the entire world markets together are so tightly woven and so intricate, that even the experts don’t really know what will work in fixing the problem. The mortgage mess is a very small part of the underlying problem of the entire system, i.e. greed.
The continued failure of banks, regardless of who reports them, only adds to further dynamic instability which does not tend to calm matters, but as with any downward spiral, makes it catastrophically worse, fatal!
While it is nice to calm ones fears by pointing to the positives, the calm only lives a short time amidst all the real and verifiable negatives.
October 6, 2008 — 1:34 am