Seventh Edition - Covering 2005 Through 2007
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Seventh Edition - Covering 2005 Through 2007 |
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Remember back in 2004 and 2005 when scores of noted economists — including those at Fannie Mae, Freddie Mac,
the National Association of Home Builders and National Association of Realtors (to mention a few) — were telling us
that there would be no housing bubble, that all was fine in the world of real estate? In all fairness to
these economists (we're not going to name names here but readers know who they are) they also looked at the
25%-a-year home price appreciation occurring in red hot markets and said the pace would not continue. They were
right about that. As this edition of the Mortgage Industry Directory went to press home values in many once hot
markets (Los Angeles, New York, San Diego, Washington, D.C., to name a few) were flat or sagging a bit. Does that
mean the bubble has popped? And was it really a bubble?
We will need to wait a few years before we can say, emphatically, whether or not we had a real estate bubble in
certain markets. Yes, home prices are dropping 5%, 10% in some areas, even more. But is it a national crisis? No.
There's an old saying when it comes to politics: all politics are local. That saying can also apply to real estate.
What's happening to the market in Los Angeles is specific to that city. It doesn't affect New York or Washington
or Minneapolis or Portland. Maine.
We mention the home price appreciation issue because home prices affect loan performance and loan performance,
in turn, affects servicing. If a consumer is having trouble making his/her mortgage payments but the home has
'equity' they can always sell the abode and get out from under an ominous situation. But let's say, for example,
that in early 2006 Mr. and Mrs. Smith scrapped together a small down payment (an LTV of 98%) to buy a $800,000
ranch in San Diego using a payment option ARM (with subprime-like FICO scores). In the fall of 2006 Mr. Smith
lost his job and they have two kids in private school and a car payment on an expensive SUV. They see the San
Diego housing market declining and are wondering if they should sell (at a slight loss), work out a settlement
with the servicer, or just hand in the keys.
Read the full text in the paid version of the product.
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