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Housing Market Sees Troubling Sign as Mortgage Lenders Fail

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Some independent mortgage lenders feeling the brunt of rising lending rates have declared bankruptcy, in a situation said to be in the worst possible shape, in certain instances We have already laid off hundreds of employees. housing market been in since Bubble burst in 2008.

Some lenders have already scaled back or closed entirely. bloomberg Take First Guarantee Mortgage, for example, majority-owned by fixed income giant Pacific Investment Management. First Guaranty filed for bankruptcy in June after a loan taken out this year fell in value, leaving 471 of his more than 600 employees out of work.

Bloomberg reported that non-bank lenders will make up two-thirds of refinancing firms in 2021, up from about one-third in 2004, citing data from LendingPatterns.com. News and data provider Inside Mortgage Finance.

Susan Wachter, professor of real estate and finance at the Wharton School of the University of Pennsylvania, said: Newsweek There are ‘some similarities and distinct differences’ between what happened 15 years ago what is happening today— alluding to a 50% drop in mortgage originations.

“What happened during the great financial crisis of 2008 was that over-lending wrecked the mortgage industry. It was a kind of supply shock.”

Mortgages have since become insolvent, but now it’s less of a “risky lending practice,” she said. Especially for refinanced mortgages, because if the Fed rate hikes are doubling rates instead of lowering them, borrowers have no incentive to refinance.

“It’s kind of the opposite of what happened in 2007,” she says, when prices plummeted as loans couldn’t be repaid and borrowers were under water. doing.

Construction workers stand on scaffolding for a new apartment block in Los Angeles on August 16. Lawrence Yun, chief economist for the National Association of Realtors, told Newsweek that in addition to a decline in construction workers and a “massive” cut in the lending industry, consumers were Discover the many discounts available.
Frederick J. Brown/AFP via Getty Images

“Right now, consumers are doing it because they really keep the economy running and they have substantial housing assets to rely on.” , unable to qualify for a loan.

Mortgage costs have increased by nearly 80% over the past two years, she added.

Lawrence Yun, chief economist at the National Association of Realtors, said: Newsweek “We are experiencing a housing recession in terms of declining home sales, declining housing starts, declining mortgages, especially the collapse of mortgage refinancing,” it said via email.

In addition to a decline in construction workers and a “drafty” cut in the lending industry, Yun said consumers are not finding many discounts available in the economy.

“The housing market is on solid footing and in an invisible predicament,” he said. “Homeowners are still experiencing wealth growth. We hope that house price growth will moderate to a single-digit annual rate, giving future homebuyers a better chance of catching up.

“The extent of the multiple offers is not as strong as the number of sales is low. It is still true that 40% of homes are sold at list price or above as the housing shortage continues,” Yoon said.

Wachter, who co-authored a book called american housing bubble He said the 2008 recession could lead to an economic “hard landing” if mortgage rates continue to rise significantly. Facts make things worse.

“We’re going to hit the mortgage market even more because housing will become more affordable,” she said. .

Update Aug 23, 2022 3:10 PM: This article has been updated with additional comments from Susan Wachter.

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