Monday, November 26, 2007

Just Wait Until Next Year

I am a huge Cubs fan and our mantra is, "Wait 'til next year." We have been waiting for one hundred years now (just about 30 for me personally) but in the mortgage market, next year is shaping up to be absolutely horrid.

2008 is already turning into the year that we want to forget and it hasn't even started yet. Let's start with the obvious...2 million homeowners ARM loans adjust next year. Right now, about a third to a half of the loan applications that I am doing have ARM loans and are currently behind on their mortgage payments.

I have done more denials on these loans than I can ever remember. And really, there isn't one file that we have denied where I have thought, "We could have done that." Not one. Every situation has been one where the loan was going to foreclose at some point in the near future and it was just a matter of who the lender was at the end.

It is only going to get worse. Fannie and Freddie are facing serious liquidity issues that threaten to choke off the one constant source of funds through this crunch. I was in a conversation Friday where my Executive stated that by this time next year, if you want to refinance or by a home with less than 10% equity or down payment, it would have to be a FHA loan. That is truly sobering. And honestly, it wouldn't surprise me at all.

PMI companies are going to struggle to survive, if they even can with the wave of foreclosures coming.

And best of all, there is not a thing the Fed can really do to help it. Banks, lenders, credit unions, all of them have to hope that what is really coming, not just in home loans, that they are prepared. Most are not. You are going to see some more major consolidation in banking institutions as this shakes out over the next couple years.

If it gets as bad as it possibly could be, there will be a run on at least one major US bank. I would like for it to happen sometime in the first half of next year. I hope it doesn't happen. But I would not be surprised in the slightest.

Just wait until next year. 2007 is just the appetizer.

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