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With WaMu and Countrywide “on the ropes,” but giving us that dreaded assurance that “everything is fine,” what’s going to happen in 2008 for the industry and Originators? It seems that only Freddie Mac has a picture of the depth of the situation that we’re in, while much of our reeling industry sees something like a Recovery in 2008.
I want to know what the truth is gonna be in 2008–and I don’t have all the answers. My basic assumptions:
- 75% of the people employed TODAY in retail mortgage banking are gone.
- Loan To Value will be capped at 80% for most loans. This will be done because MI will double or more in price, seeing as MGIC is only being saved (through no fault of their own) by the fact that the worst of the loans were done on 80/20 combos.
- Only the best loans will get done, and the bar will keep being raised.
- We’ll see a 12-14% one year decline in property values.
- Refinance transactions (where 70% of the problem loans originated) will be capped at 80% for any type of cash out.
- FHA/VA will be all that’s left for little-to-nothing down in most areas.
- Transactions will be down 35%.
- Fee offered to us brokers will be reduced to 1-2% or $2500 bucks per transaction if we are to remain price competitive. Lenders still want the best of the loans from us, but not badly enough to overcompensate.
Exceptions apply, but this is the future. What do you see the near future doing? Is this accurate?
Chris,
I don’t have time to respond in detail, but I think you’ve got a good angle on things.
I’ll write more later today.
Tom
That all sounds pretty realistic, Chris. I try to look at trends and evidence, and I don’t see anything to contradict your thoughts. I wish I could disgree!
Another footnote to your items - foreclosures on non owner occupied homes will continue to increase. Guidelines are being restricted big time on seasoning, vacancy factors, and ltv there. And many banks are beginning to classify this product as commercial lending, which means the borrower’s entire portfolio of properties has to be making money as whole, no matter what the personal dti may be.
Wow Chris your assumptions are about as pestimistic as I have ever seen. Perhaps you should consider packing up and move to a new industry.
Wamu and Countrywide were two very poorly managed companies. They quite frankly deserve to be on the ropes. Its odd that dispite all of the noise I have had several wholesale reps from large regional banks approach me and tell me that they believe this is there time to enter to mortgage market.
I agree that ever lender has tightened their guidelines. But gee I can still do 90% sisa. I have still have several 100% programs at my disposal. Lending guidelines today are about the same as they were in the late 90s when real estate and lending were very stable. I see no need to go back to 1960 guidelines.
If your assumptions were to come true then housing would never make a recovery. There are too many factors in our economy to let that happen.
75% seems unrealistic to me. Also, max ltv will be at 80? That also seems unrealistic. People with good, full doc income and good credit will be able to buy at 100 ltv. That’s the way it should be anyway.
I’m not gonna live in fantasy land–the new market will dictate a harsh reality.
What if I’m wrong? Will you be OK? Sure.
What if I’m right? Will you be prepared?
Chris you assume that only a few people have the ability to lend money. There is money to be made in investing in mortgages. If someone pulls too far back other will step up and take the risk and the reward. Risk is being repriced at the moment becuase it wasnt done correctly in the first place. The markets were performing well up to the end of 2004 when lenders tried to extend the housing boom dispite many market forces telling them otherwise.
I am quite comfortable with assuming that guidelines will continue to see some tightening but your assumptions are out of this world. I will place my bets that 2008 will continue to be a diffiult year but we will not reverse 50 years in 12 months.
Chris I think you are more right than Mike would like to believe as your scenerios describe what will be very possible depending on market location. States like Fl and CA are already seeing lenders tightening up on programs, ltv and more.
The housing market in general will recover, however the last few years of the easy free I-can-get-a-monkey approved days are gone. As much as Mike and others may not like to admit it, business is down for everyone across the board Brokers,bankers and others are not making anywhere near the money they were a few years ago..business as usual..I don’t think so..more like back to reality..
50% maybe. It takes time to unwind and there still needs to be someone to turn out the lights. 75% would have to be leaked to the peopel you need during the unwind and they’ll bail leaving you unable to downsize because all the talent has left.
Any cashout refi will be against a very conservative 80% and carry a rate premium. It will be difficult to do any refi unless the balance does not go up at all including fees.
The OFHEO median may go down 8-10% but 15-20% for any individual equivalent property is more the reality. Your 12-14% splits the difference.
There will be no more low/zero down payment products unless government subsidized.
There will be multiple and retroactive broker regulations/standards/qualification/registration legislation by the end of the year.
Jeremy, I think your 90% SISA products are going to disappear. Fannie and Freddie are re-writing there contracts with the lenders as we speak, and lots of stuff that’s available today is not going to make its way into those new contracts.
Wouldn’t shock me to see 80% SIVA become the new max for non-full doc deals within the next 30 days.
Facts are there is money to be made in lending. Always has and always will. If one investor pulls too far out of a lending niche another will gladly step in, price the risk right and make good money.
The problem that the markets have today are a result of low risk premiums in pricing and too much capiital being invested under false credit ratings. This primarily happend over a course of about 2 years. Those factors are changing. The loans we are now booking will perform better and create more demand for mortgage investing. Some useless products will be eliminated and some will come back with better risk pricing.
I dont doubt that 100% products are going to be tightened nor that transactions will be cut by a substancial number. But no one is going to tell a broker he can only make 1 or 2% on a loan. Thats simply laughable and blue sky wishing on behalf of the retail channel. LTVs are not going to be capped at the 1950 level of 80%.
Stated income loans need to be tightened further and thats a good thing. Personally I would like to see stated loans disappear completely. It would be a good thing if everyone paid the same taxes as I do.
I have litterally had new lenders call me everyday for the past two weeks looking to set up new wholesale relationships. The regional banks will seize on the weakness of the larger banks with their stronger balance sheets. It will be nice to have the big banks and their weak balance sheet retail reps on the street as my competition.
Disagree with me all you want but I will be in business for another 20 years years. My business plan has always been to build a clientelle of referral business. Thats the answer to long term success not trying to forecast what may or may not happen in the next 30 days or 12 months.
Everytime I write something remotely positive in this blog I get the same people telling me i am i basically stupid. I will accept that if you can tell me you too are making the same money this year as last. I actually will make more money this year. Thats what happens when you are positive.
Whenever I have had an employee with half as negative as most of you in this blog I know they dont have a snowballs chance in hell. My reccomendation to those of you who only see bad things is to get out of this business now. Its not meant to be an insult its truly whats best for you.
Mike, what part of the country are you in? It sounds like you may be in one of the few growing areas left in the U.S., like maybe Midland, TX with oil wealth and inexpensive housing. I work on the Central Coast of California and it sucks right now.
I agree 100% with property values declining another 12-14%. We will see another massive ‘dump off’ of properties onto the marketplace in 2008 for all the same reasons….and it is our job to pound these figures into our customers heads.
If they don’t wake up and smell the roses soon, they won’t be moving. Hope they can afford what they are currently involved in or measures could become drastic..
I have to agree with Mike. I have had a blockbuster year along with all the other top producers at our company. My business is also built on referrals and my phone is still ringing. People still need to buy homes and banks still need to lend money. This is the kind of market built for the professionals. I see this as an opportunity to grow market share. All the little leaguers need to go home. I am sick of the whining.
For every bank that steps out, another will step in. Just as Mike pointed out, a lot of the smaller regional banks have stepped up to the plate to do the loans that make sense that the big banks that are too stupid and inefficient won’t do.
The market is the way it is because investors can’t put a price on the loans. As such, no one wants to lend money until the market sets a price. This is why even loans that are great but don’t fit into the Fannie/Freddie model are priced so out of whack. However, if you look at the lenders who actually portfolio their stuff their pricing is phenomenal right now.
If your business was built on Option ARMs, SISAs and sub prime refi’s good riddance. Don’t let the door hit you on the way out back to the car lot.
The other good news is that consumer are finally getting that it isn’t good to work with the telemonkey LOs either. I am finding more consumers looking for PROFESSIONALS, not a 22 year old rate jockey promising the moon.
Good responses. I’m up 50% from last year, and I’m making my predictions based on loan performance, institutional investor availability, and other metrics. Not what I wish will happen.
Fact: We’ve learned that the high ysp loans have higher default and lower performance rates. Lenders will fix.
Fact: Lenders don’t want to compete with us as much as they are.
Question: My business will do another 25m next year. I am prepared for 80% max LTVs. I am prepared to attract 70% Deals, so whatever the market offers, I’m good.
Are you? What if I’m right? Is your business going to grow or get killed. I don’t want this reality to happen. I want Lawrence Yun to be right. He’s not, but I want it. Let’s deal with reality land, OK?
One big question is whether ANY reduced doc loans will be legal anymore. HR3915 passed the House. Supposedly Chris Dodd introduced his legislation in the Senate today and that it requires documentation of “ability to pay”. If an ability to pay standard makes it into law, it’s hard to imagine how any reduced doc could be legal - even at 15LTV. MN passed a “must document ability to pay” law and only full-doc loans can now be done there (unless you’re a bank and exempt from the law). Max SISA’s may not just drop from 90LTV to 80LTV. They might drop to zero LTV !
Does anyone have a link to a copy of the Senate bill that Dodd intorduced or is introducing.
For the ones whose business is up compared to this year..where are your markets located?
I am assuming that none of you are in CA(like Guy) and FL..where most brokers are not cheering their numbers in comparision from last year to this year..
Mike I don’t think that you are stupid..however I do believe that you are in a more stable market than many others.
Not every state is in a “major” housing crisis..that I agree…which is why I stated business, no matter how you slice it is down/changed for most.. you are having to work harder/smarter to meet your numbers..or you are not meeting them.
Mike,
I suspect that many of the people who are negative about the housing market are positive about their own personal prospects. That’s my outlook, anyway. A terrible housing market and increasingly conservative underwriting rules will drive out the idiots - leaving only those of us whose focus has always been on advising the consumer of the most cost-effective financing.
> 75% of the people employed TODAY in retail mortgage banking are gone.
I can see 75% from the peak, but from today? ouch!
> We’ll see a 12-14% one year decline in property values.
Maybe I’m jaded because I live in Phoenix, but this sounds too conservative. Nationwide, sure. But in bubbly areas 20% or more is likely (I’m not saying “possible”, I’m saying likely!).
> Loan To Value will be capped at 80% for most loans.
My 2009 prediction - LTV capped at 70% for most/all loans. But that’ll be as bad as it gets.
One final question, when does the REO liquidation begin? 2008? If so, what month (or season)?