This was presented at our Beachwood office meeting from a mortgage lender....
The main stream media is taking this whole "mortgage meltdown" thing way too far. It doesn’t surprise me. It’s a hot button issue, and more Americans are homeowners now than ever before. If you read the Plain Dealer or watch the cable news networks … the fear mongering is out of hand.
I had a buddy call me this weekend he put 15% down a year ago, has great credit and asks me: "Should I be worried?" NO!
I wish one of these newspaper reporters would call me so I can give them the whole story, and not just the headline grabbing fear mongering. I guess when readership is down because of the internet and you have to create hype, why not go after the fear in everyone's heart: their home??
The people that are getting burned right now are the end game aggregators of all the risky loans this industry did over the last five years. The people who craved that high yielding paper during times of fantastic home appreciation. Almost all of it on products that would see the rates increase a couple years after origination. We should have never been doing these loans in the first place! Sure, we did some of it here too … but not one 100% CLTV loan, pay option ARM, or sub-prime loan ever hit our portfolio here at the bank.
The lenders like us that exhibited responsibility during a half decade of rampant irresponsibility in this industry are not only fine, but positioned to grow and thrive in the wake of the fall out.
I could not be more excited about the next five years for us here, and we’re committed to continuing to grow while the market correction continues. There’s some great years ahead for this industry, and with far fewer hands in the cookie jar. Are there going to be less qualified borrowers? Of course. But there will also be far less competition for their business, and good originators should be able to capitalize on that.
I’ve said it before. We’re just returning to the way things used to be. The way they should be. The biggest refi boom in history, followed by years of historically low rates, and programs developed for every borrower … it inundated this industry with far too many players. Yes, home prices are still overvalued. Depending on the market, by anywhere from 5-20%. In Ohio, as a whole, probably by 12-13% total. But this is after six years of 5-10% appreciation!
Here’s what’s happening now.
Guy bought home in 2000 for 150k. Home was worth 200k in 2006 if he sold then. Even though home prices, on average, over history, only go up 2-3% per year. He got 6% a year for the last six. Hey buddy … you missed your chance to sell at 200k. Like all markets, this one is correcting itself after years of abnormal growth. This guy now cannot fathom that he’s only getting bids of 180k. Looks at it like he’s taking a 20k hit, when in all reality … his home never should have been worth 200k. And he missed his opportunity to sell high.
That’s what’s happening out there. There’s a lot of homes for sale for too much money (overpriced).
So as we move forward, I’m looking at the following set of circumstances playing out:
~Sellers slowly face reality on home values, purchases will increase ~More players will leave the market and lessen competition, larger lenders lose their advantages of having 20 pages of products, leveling the playing field ~Fed will ease rates a couple times, economy is looking like it will still show great growth in 2008 even without that ~Mortgage rates should stay low, yield curve should steepen … making ARM’s more viable once again
Listen … when everyone else is zigging, you zag. I couldn’t be more excited about this industry right now.