When you do a quick scan of mortgage related news and current events online, you’ll be overwhelmed with the amount of gloomy housing market/financial forecasts. Interest rates are at a 4 year high, applications are down, and the unofficial start of spring (President’s Day) hasn’t provided the immediate boost to the purchase market yet. Everything I see seems to have an underlining tone of increased risk and inevitable crash…
Since statistics show decline, people naturally start to over-analyze and predict the worst. Understandably so, since the housing market collapse of 10 years ago will never be forgotten. But what has surprised me more, are those who are trying to draw direct comparisons between now and 10 years ago.
It’s apples to oranges to me, especially since “Nonbanks” are now major players in the market. Nonbanks dominating the market have been unprecedented in this industry, and this uncertainty is probably causing people to be even more nervous. Some say nonbanks take on much more risk than traditional banks, and if this “higher vulnerability to delinquencies” comes into fruition; another meltdown will happen.
Nonbanks are originating more mortgages for a reason. In my opinion, traditional banks couldn’t provide enough options for the masses and some people simply feel more comfort with a company that specializes in their specific need. And just because this hasn’t exactly happened before, doesn’t necessarily make it an even riskier business. Just because the traditional banks got away from best-lending practices years ago, doesn’t mean that nonbanks are making the same mistakes now.
If nonbanks are indeed making the same mistakes, then I am sure their days will be numbered. The commercial banks that extend credit for nonbanks to lend with will revoke their privileges. I would think that most nonbanks are aware of the major risks, but I also encourage third-party originators to get approved with more nonbanks to keep more options open (hint hint, we are still accepting broker applications 😊). It is fair to say that I have a bias towards viewing nonbanks more favorably, but I hope that most can agree to this… As risky and uncertain as business may seem in this industry, a meltdown will not happen again if best-lending laws and practices are being legitimately followed…
Thanks as always,
Charles
The opinions expressed in this post are the sole view of the writer and do not reflect the opinion of Princeton Mortgage Corporation.