And I quote, “Bubble, bubble, toil and trouble. That might well be the new theme for the U.S. economy. Washington – the White House, Congress, housing agencies, and the Fed – have learned nothing from the housing bubble of 2007-08.”
Moore adroitly explains (as I have many times on HousingWire), that although there is blame enough to spread across Wall Street, and to many involved in the mortgage and real estate industries, as well as to consumers themselves, the true enabler was our government.
Through easy money, housing policies that pushed people into low down payment loans that many could not or would not ever repay, and a tsunami of debt, the stage was set.
Evidence abounds that the bubble is now being re-inflated by these very same culprits:
- Fannie Mae and Freddie Mac are once again offering 3% down payment loans, albeit with purported underwriting “safeguards.”
- Janet Yellen has yet to pull the plug on zero-interest rate loans that have only benefitted Wall Street and their congressional “partners,” which means that interest rates will no doubt begin to rise in 2016.
- Government debt has climbed from just under $10 trillion in 2008 to more than $18 trillion.
- Federal Housing Administration loans have become the “new sub-prime” loans according to many high-profile members of our industry.
- There remains significant concern that the recasting HELOC loans will drive delinquencies upward.
If those aren’t troubling signs enough, other reports, including one from RealtyTrac, recently indicated that bank repossessions have spiked 66% year-over-year in Q3 of this year.
This is the greatest annual rise ever recorded by RealtyTrac. The foreclosure sales and real estate analytics company stated that more than 123,000 single-family homes went back to the lenders in just three months.
While it is true that in states such as Florida, Massachusetts, New York and New Jersey, a virtual flood of deferred foreclosures from the previous housing crisis are finally cascading over legal and legislative dams in these judicial foreclosure states, other states, such as Nevada, are seeing dramatic increases in mortgage delinquencies.
And, a dramatic rise in foreclosure activity will impact values in certain markets. A very large percentage of the homes being foreclosed upon have deferred maintenance, which means they will be sold at discounted prices. The added inventory of homes will in itself drive down or slow rising home prices, but the discounted sales will have an even greater negative impact.
Additionally, in an article in HousingWire authored by Brena Swanson on Oct. 19, “MBA predicts mortgage lending will shrink next year,” there is both negative and positive news for those involved in real estate.
According to Swanson, the Mortgage Bankers Association said at a press conference at its annual meeting being held in San Diego that it expects a decrease in refinance mortgage originations. But, it is also predicting an increase in purchase mortgage originations.
Swanson reported that Michael Fratantoni, chief economist and senior vice president of research and industry technology with the MBA, attributed the predicted increase in purchase mortgage originations to a mixture of factors, including growing demand in households for owning a home rather than renting, and mortgage finance options.
To put an exclamation point on Moore’s observations, consider that Fannie Mae and Freddie Mac are much more bullish on loan originations for 2016. Why wouldn’t they be, since they are promoting 3% down payment loans? This will no doubt increase loan originations, but just as surely, it will increase delinquency risks.
As a result of all this, there is a looming downward spiral predicted here. That said, savvy real estate professionals, investors and potential home buyers recognize potential opportunity when they see it.