April 23, 2019
The Readiness of the Mortgage Industry in Case of Crisis
We are a mere decade out from the housing crisis of 2008. Everything about the housing market is, at this point, viewed through the lens of that calamity; every rubric that gets measured is glanced at with anxious side-eye. The questions hover overhead like clouds of smoke: Is the market moving in that direction again? Will we be able to predict if things are going that way? And, perhaps most importantly, if such an occurrence appears to be on the approach, is the mortgage industry ready?
Luckily, by all appearances, institutions appear much more sturdily constructed now than they were in the years leading up to the crisis. In a post made in September of 2018, Fannie Mae’s VP of Single-Family Risk Management Jude Landis examined the fundamentals of the housing market, and made a resoundingly positive assessment. Technology, quality controls, and underwriting procedures have all undergone improvement since 2008, and resulted in, as she says, “a fundamentally sounder mortgage system than before the crisis of 2008.” Among these improvements are changes in the loan origination processes made by lenders. Another, she claims, is in the regulatory framework, which includes the new qualified mortgage rules and ability-to-repay rules, which guide the mortgage standards in ways that display marked improvement from the situation in 2008.
All told, it appears to come down to the revisions made to standards guiding credit eligibility and processes which do a superior job of assessing risk. Fannie Mae, for its part, is not engaged in the purchase of high-risk loans, such as those with low- or no credit documentation, interest-only single family loans, loans with pre-payment penalties or balloon payment features, or loans with negative amortization. Moreover it is clear that the average FICO credit score (“the strongest predictor of mortgage delinquency”) of the borrowers whose loans are purchased by Fannie Mae is a great deal higher now than it was prior to the crisis: 743 today, compared to 717 eleven years ago.
This stability also builds resiliency into the marketplace. There will always be cycles of upturn and downturn in the housing market—but with standards and procedures like those now in place, the likelihood of a new crisis appears low at most, and the mortgage market would likely be able to withstand crisis pressures.
Here at Topouzis & Associates, P.C., we do extensive title search work and perform curative services on every form of residential property, so that a buyer knows they are getting into a home with clear title. Contact us if you have any questions or if you would like our considerable experience in dealing with the particularities of the real estate system.