Five bad years seem enough for the mortgage industry to be down in the basement. What will it take for the business to start to turn the cycle next year?
You can bet industry officials attending the annual convention of the Mortgage Bankers Association in Chicago this week will be asking themselves whether 2012 will be the first of the up years or the last of the down years (the mortgage business tipped into recession in 2007). That's assuming 2013 will be an up year!
There are no real indications the massive foreclosure logjam that has caused so much misery is anywhere near resolution. Shadow inventory lies waiting to be added to the mix whenever actual inventory is listed and sold as REO. Meanwhile, foreclosure sales are still depressing home prices, causing many to wait on the sidelines until the bottom of the market.
Nor is there much indication the underwriting squeeze that has prevented many borrowers from getting credit this time around will be easing anytime soon. And the drop in Freddie Mac and Fannie Mae loan limits will only make a nonconforming liquidity squeeze even worse.
Record low interest rates have not sparked any massive refinancing boom (perhaps a boomlet), and the purchase mortgage market remains at a low ebb, especially with new home sales. Borrowers may be waiting for the perfect storm to get back into the market—lowest rates ever and lowest prices ever. That may not happen, so consumers would be advised to take record low rates and low values as a great twofer.
Add to that the uncertainty over the fate of Freddie Mac and Fannie Mae, and it seems as if there is a continuing massive overdose of bad news for the mortgage industry.
What can be done to turn it around? It's no short order. The general economy needs to rev up a little more to convince consumers their jobs are safe so they can be confident enough to buy or refinance a home. Lenders need to loosen the purse strings on whatever amount of money they are sitting on ($2 trillion is a number often bandied about) to allow for more robust mortgage lending. And if consumers and business keep sitting on their hands, the much-derided federal government will have to provide some targeted stimulus to break up the logjam.
It will be interesting to see how minority mortgage lending fares in the new Home Mortgage Disclosure Act data for 2010. The number of minorities in this country, especially Hispanics, keeps rising, but mortgages made to them took a tremendous hit in the mortgage collapse.
Expanding markets remain a key to the mortgage industry turning the corner on this dismal cycle. Loans to minorities and immigrants, where they make sense (there needs to be no repeat of the subprime debacle that targeted many minorities in a predatory fashion), will add some heft to originations.
Last year, mortgages to minorities rose by 8% after an enormous drop of 45% in the 2008 numbers. Minority percentage of loans was flat, meaning no real gains but no slippage. There are plenty of Hispanics, African-Americans, Asian Americans and Native Americans qualified for a mortgage but haven't had access to one because of bias or neglect. Smart lenders will look to these populations to add to their originations next year.
