Mortgage companies plan for slow housing market
As the housing market continues
to slow, mortgage companies are adapting new plans to
adjust to the coming changes.
Decreased home sales and more
foreclosures have prompted mortgage
brokers and companies to devise strategies to help
soften the blow that will surely come any day now.
The slowing real
estate market will surely affect mortgage
companies, because since fewer homes are being sold,
fewer mortgages will be taken out.
According to the article, “Mortgage lenders grapple
with housing slide: new cost cuts and risk reduction strategies
being planned,” from Reuters news source on July
26, 2006, mortgage companies across the nation are planning
for the worst.
“The lenders are launching new cost cuts and risk
reduction strategies that suggest growing concern that
the outlook is worsening for the $9.5 trillion home mortgage
industry,” according to the article.
Companies are worried because of the decrease in the amount
of homes being sold and the increase in homes on the market.
All of these factors could contribute to a slow down among
people taking out new mortgages as well.
“It marks another ratcheting down of expectations
for the big players in a housing market where slowing
sales have pushed inventories up 39 percent in the past
year and set home prices on the path of decline, some
analysts said. Builders of new homes, meantime, reported
the lowest confidence about their prospects in June than
anytime in the past 14 years.”
“Lenders are bracing for further declines.”
One of the main reasons why mortgage professionals are
so worried is because when the real estate market reaches
a peak, like it just did, it does not come down from this
peak with a so-called “soft-landing.” There
is normally some sort of a “crash,” which
is a bad situation for just about anyone.
To prepare for the worst of the worst, lenders are employing
tactics such as cutting jobs, utilizing different
styled loans and re-thinking riskier loans that they
normally would have funded in better times.
“Countrywide, New Century and Thornburg Mortgage
Inc. are wading deeper into more lucrative payment-option
adjustable-rate mortgages, products increasing in popularity
since borrowers can defer all principal and portion of
interest for a period. The lenders conceded the loans
have unknown risks as their payments reset higher, but
for now are relying on data including credit scores to
manage their default exposure.”
Although the numbers are not looking too good, some say
that things may not turn out so bad.
“Still, many economists are anticipating a soft
landing. Erosion in the market so far is just a “mid-cycle
correction,” said David Seiders of the NAHB. As
long as rates do not rise much more and the economy remains
strong enough to support jobs, the market will recover,
he said.”