Ten Years After the Mortgage Crisis…What Have We Learned?

Subprime crisis. Securities collapse. Foreclosure rates soaring. In 2008, the real estate market could hardly have been in a worse condition. The fallout from the previous decade of so-called NINJA loans (no income, no assets, no job) and mortgages which required no principal payments hitting the wall of suddenly higher payments on adjustable rate mortgages, especially at a time when many mortgagees were losing their jobs, created a ripple effect throughout the US economy.

The private-label securities market had collapsed as well, so there were no secondary market loans outside of loans available through Freddie Mac and Fannie Mae. People were displaced due to foreclosures, consumers were afraid to borrow and lenders were reluctant to loan to people without stellar credit. The real estate market was in a deep hole.

Ten years have passed since then and while 2018 may not be the mortgage boom some might hope, the market has recovered a great deal and is much healthier than it has been in previous years. Rates are again on the rise, with the Federal Reserve hiking interest 25 basis points in mid-December of 2017, the third such increase for the year.

While the rising rates may cause some difficulty in obtaining qualified mortgages, borrowers with higher credit profiles may benefit from better rates. Risk-based pricing is a much more refined concept now than it was ten years ago. That said, the rising rates also make it unlikely that borrowers will have any desire to refinance.

In 2008, home values were dropping rapidly, with some sinking to half of what they had sold for only a few years earlier. The upshot of this was many borrowers being underwater on their homes. This year, the housing market is stable with prices steadily appreciating in most areas. This makes property, from small starter homes to luxury mansions, more valuable to the owners, but it can also make it less affordable for new buyers.

Many homes, however, are still affordable if buyers do the research to find the right loan product. Finding and completing the right loan for you has become markedly easier in the last decade, thanks to technology. In 2008, the mortgage industry was lagging behind many others in terms of making services and paperwork available online. Faith Schwartz, a veteran industry consultant and principal of Housing Finance Systems Strategy says “Freddie Mac purchased the first ‘truly digital’ end-to-end mortgage in the fall of 2017. New technology [companies], great advancements in data usage as the source of truth and shifting attitudes in the use of technology has created a revolution around the mortgage space. It will be important to make sure that regulation is keeping pace with the innovation.”

The seeds of the enhanced compliance and regulation that lenders and others in the mortgage business have to deal with today were planted in 2008. Dodd-Frank, TRID, and state regulations have led to an increasingly complex regulatory landscape, mortgage industry experts agree. The additional regulation has at least doubled the cost of processing a mortgage, with lenders needing both additional automation and more personnel.

Schwartz points out: “We are looking at a change in leadership across many of the regulatory agencies. The jury is out on what this means and it will be interesting to follow. We all agree, we cannot have a repeat of the great recession due to housing mishaps. But we should be careful about the approach to the next decade and remain mindful about transparency, consumer protections, and safe and secure lending.”

At Setco, we continue to keep pace with the changes in the industry. We bring cutting edge technology to the closing table, with secure, encrypted delivery and storage of closing documents and our Paperless Closer tool. Whether you’re a buyer, a seller, a lender or a realtor, click below to learn how Setco Title Services can add value and efficiency to your real estate transactions.

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