TheMReport — News and strategies for the evolving mortgage marketplace.
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TH E M R EP O RT | 13 FEATURE By Phil Britt COVER STORY F rom a macroeconomic perspective, the mortgage market entering 2008 was in tatters. The collapse of the subprime and the Alt-A markets, as well as an extremely weak jobs market, made consumers skittish to borrow and lenders reluctant to make most loans. It was the worst of times. "Entering 2008, we were dealing with all of the fallout from the liberal lending policies of the previous 10 years," says Matt Clarke, CFO/COO of Churchill Mortgage. Those previous 10 years had included low and no-documentation loans that could easily be falsified, as well as mortgages with no principal pay- ment requirement, meaning they would have negative amor- tization. Extremely popular adjustable-rate mortgages were readjusting with higher payments due to higher interest rates at a time when many mortgagees were losing their jobs. "The subprime crisis quickly infected all lending," recalls Faith Schwartz, a veteran industry consultant and principal of Housing Finance Systems Strategy, LLC. "The mix or origina- tions shifted considerably and many people were displaced over several years due to foreclosures." The private-label securities market had collapsed as well, so there were no secondary market loans outside of loans avail - able through Freddie Mac and Fannie Mae, says Joe Melendez, Founder and CEO of ValueInsured, Inc., a company that pro- vides down payment protection for homebuyers. "The focus was on saving people's homes, not on mortgage originations," says Camillo Melchiorre, President of IndiSoft. "Everything was in the tank." Though the beginning of 2018 may not qualify as the best of times, the mortgage market is in far better shape than it was a decade ago. Rates are again on the rise, with the Federal Reserve hiking interest rates 25 basis points in mid-December of 2017, the third such increase for the year, and two to three 25-basis-point increases expected for 2018. "We are getting back to a normal landscape," Melchiorre says, a sentiment expressed by many others. Rising interest rates make it more difficult for some borrow - ers to obtain qualified mortgages than a year ago. Yet, even with the expected increases in 2018, rates will still be below what they were in 2008. Additionally, borrowers with the best credit profiles can get better rates. Risk-based pricing is a much more refined concept now than it was at the beginning of 2008. However, just as it was at the beginning of 2008, the rising rate environment entering 2018 will mean that borrowers will be doing very little refinancing, mortgage industry experts agree. In many ways the last 10 years have been the worst and best of times for the housing market. MReport dissects a decade that began with the housing market crash, and slowly recovered through evolving mortgage processes, emerging technologies, and new regulations.