TheMReport — News and strategies for the evolving mortgage marketplace.
Issue link: http://digital.themreport.com/i/1481918
M R EP O RT | 39 FEATURE "I get a comfort level when I understand that there are people both in the public and the private sectors who are keeping an eye on what happened a decade ago." lending practices. We saw a lot of questionable documentation pro- grams. When you marry question- able documentation with hundred LTV loans, there's not a lot of room for error. We know that the primary cause for the decline that we saw is not just the increase in default rates but also the increase in foreclosure rates at 100 LTV loans, where we know they get executed, or at least liquidated, at points that are below market value. What we're not seeing now is a lot of irresponsible, high-LTV lending. I'm glad that's the case. What I do also like that we're seeing is, we've got a lot more folks in government lending, or government related—the Fannies and Freddies of the world—that are very conscious of true risk management. I think there was a concentration for a long time on providing homeownership with a secondary, or even tertiary, look at what the real risk was. Now, I'm glad that there's a great deal of focus on protecting the taxpayers. We have seen a precipitous rise in home prices. I get comfort when that rise, when increases in home prices, is organic—when it's people moving for reasons that are fundamentally sound in the long term. What we have seen over the last three-and-a-half years is a combination of a fundamental pickup in home prices, which have to do with supply and demand, but also a lot of the movement that we've seen outside of cities into the suburbs, which is COVID-19 related. That's clearly a short- term technical move, and we are starting to see some home prices come off the top. A lot that has to do, in part, with coming out of the COVID-19 crisis. It's also about the increases we've seen in mortgage rates. As you take a look at what's gone on over the last maybe 18 months or so with inflation statistics, and deficit numbers, you are seeing a pickup in inflation. There's going to be some difficulties around. There aren't a lot of ARMs, but the ARMs that we have out there, will begin to reset. They'll begin to reset at much higher rates. People will generally solve for what they can afford, in terms of a monthly payment, not necessarily about the home they can afford, the payment they can afford. There's going to be an adjustment of solving for what you can afford. I get a comfort level when I understand that there are people both in the public and the private sectors who are keeping an eye on what happened a decade ago. It's not like it happened a generation ago; there are firms out there still licking their wounds. I'm encour- aged that when you start to see spreads widen, when you start to see interest rates going up, that there's a general feeling that you don't open up the credit box to fill in the supply we're losing because of organic, fundamental changes in the marketplace.