Editorial: On the Bright Side
As the industry heads into the MBA's annual convention, there will be a lot of focus on the challenges facing the real estate finance sector.
But while 2007 may seem like the worst of times in some ways, it's time to reflect that despite the industry shakeout - especially in the subprime sector - America's housing finance system remains fundamentally sound. The U.S. remains one of the few places where homebuyers can obtain long-term, fixed-rate financing on relatively cheap terms. And while underwriting has been tightened and investors are shunning some of the more risky products and credit grades, consumers still have a wide variety of choices in how they finance a home purchase.
That's good for the country. It's also a testament to how important the mortgage servicing system is to maintaining America's high rate of homeownership.
Despite all the gloomy news and the failure of many mortgage companies, housing finance remains a good business to be in. Demographics suggest that while the rate of growth in mortgage debt outstanding has slowed, it's long-term growth rate, fueled by demographics, will continue to outpace inflation and general economic growth, according to many economists. Moreover, the shakeout occurring in the industry today means that credit risk will be priced more rationally, which hopefully will deter excessive risk taking in the future.
Moreover, mortgage rates have remained -- by long-term standards - very low for an exceptionally long period of time. Those who remember the 1980s and even the early 1990s know that having 30-year, fixed-rate financing available at rates lower than 7% for prime credit quality customers is not a given. But it has helped many people become homeowners and stay homeowners, and there is little on the horizon to suggest that rates will spike upward anytime soon. While the MBA predicts that credit worries will delay a recovery in the housing sector, the worst may be behind us. The association projects that existing home sales will decline again next year, but only by 4%. By contrast, the MBA projects that the decline for this year will be 9%. The same pattern is true for new home sales, projected to fall by 20% this year and another 5% next year. (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com/