What is going on with the mortgage market?

I’ll admit the mortgage market right now has me puzzled. I was predicting a crash in demand as the demand for labor drops like a rock. So I’m initially tempted to say it’s financial interference as in the meme…

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…but I’ve been asking around and the demand appears to be organic. So I’m puzzled.

Is it really true that a lot of people have decided this is a good time? Was there a government program that’s slashing cost of buying despite the much higher demand? Are they buying homes from the recently unemployed for fire sale prices? Is it one of those purely psychological processes where behavioral economics ignores classical economics and people just do the opposite of what raising the cost would predict?

Update: Eduardo says some stuff that sounds smart.

I work in mortgages on the back end, so while I can’t tell you what customers are telling people, I can give you some info from inside the mailroom, so to speak.

When rates hit all-time lows in early March, there were a glut of refis. So many that banks were turning away customers because they didn’t have the manpower to process all the applications. Literally, if you had a mortgage, the current market rate was lower than what you have now. Banks reacted by artificially increasing rates to discourage traffic, but nobody could agree on how much was proper. Since then the market has been a yo-yo, and so anytime rates are even reasonably low, like they have been for the last week or so, they jump. Some people are still salty they didn’t get in on the refi action and are sour-grapesing a refi now so they can save some face with the neighbors.

So while everything looks normal and good from the front, I can tell you that the back end of the business has gotten HARD. Conventional loans have always been the hardest to get and are the safest bet investor-wise. No change there. It’s the govies (goverment-backed loans: FHA, VA, etc) that nobody wants to touch. Finding and investor willing to back or buy a govie is taking an act of God, and anybody willing to stick their neck out is getting hammered with business and don’t have the capacity, beit funds or people, to accommodate. Many are increasing minimum credit scores or employment histories to keep customers away.

I’m with Vox in saying that deflation is coming. Not sure how many banks are going to go under (I think ours will be fine because our owner isn’t a greedy little shit, i.e. he’s not a small-hat) but you’re definitely going to see a contraction in loans given out. Fresh money is going to be hard to come by. I don’t think you’ll see as many defaults as people are panicking over (remember the refi run from earlier) but new house buyers and housing sales will go down, due mainly to a tightening of the belts.

I’ll add that there’s a lot of duct taping going on to get borrowers to qualify and to get those loans shipped out the door once they close. A lot of ‘creative solutions’ if you will, for both borrowers and investors. So if you strictly look at lock volume, everything is fine. But the amount of effort being expended behind the scenes to make all of it work has been phenomenal. It will not last. When it takes twice as many man-hours to originate a loan and you have to hunt for new investors every two weeks, a lot of places are going to determine that the juice isn’t worth the squeeze and close shop. The guys who want the big money and he easy money will leave, too. Remember, everything is fine. For now.

About Aeoli Pera

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9 Responses to What is going on with the mortgage market?

  1. Man of Men says:

    1. Real estate lags, but most do not realize this and boomer investor types may think it is aleady time to buy. (“V SHAPED RECOVERY!”)

    2. Loads of people have asked for 2 months.
    On the third month they have to pay all three months at once (banks aint your freind golly gee).

    3. The fed, via blackrock, sacrificing long term stability to keep this house of cards up.

    PPP runs out in June

    Sep and later is likely when housing crisis comes to fruition, after the upcoming bank debt crisis (debt service to banks going into toilet and its not just oil and gas. Gov prob throw trillions more into the fire with another bailout but it wont stop anything and thats not the point anyway. As usual, its to buttfuck the American people and make a shit load of money)

    • Aeoli Pera says:

      What I’m taking away from this is all those Boomers who would have bought over the last two months have heard the starting gun, so it’s a bubble and an artifact.

      Less obliquely: it’s a backlog of people who would have bought in March and April and are now convinced the recession is over, so they’re all buying at once.

  2. fuzziewuzziebear says:

    My gut tells me that this is a terrible time to make a big ticket purchase. There is too much uncertainty out there and only irrational people will buy into uncertainty. That oil prices crashed has me spooked.

  3. Eduardo the Magnificent says:

    I work in mortgages on the back end, so while I can’t tell you what customers are telling people, I can give you some info from inside the mailroom, so to speak.

    When rates hit all-time lows in early March, there were a glut of refis. So many that banks were turning away customers because they didn’t have the manpower to process all the applications. Literally, if you had a mortgage, the current market rate was lower than what you have now. Banks reacted by artificially increasing rates to discourage traffic, but nobody could agree on how much was proper. Since then the market has been a yo-yo, and so anytime rates are even reasonably low, like they have been for the last week or so, they jump. Some people are still salty they didn’t get in on the refi action and are sour-grapesing a refi now so they can save some face with the neighbors.

    So while everything looks normal and good from the front, I can tell you that the back end of the business has gotten HARD. Conventional loans have always been the hardest to get and are the safest bet investor-wise. No change there. It’s the govies (goverment-backed loans: FHA, VA, etc) that nobody wants to touch. Finding and investor willing to back or buy a govie is taking an act of God, and anybody willing to stick their neck out is getting hammered with business and don’t have the capacity, beit funds or people, to accommodate. Many are increasing minimum credit scores or employment histories to keep customers away.

    I’m with Vox in saying that deflation is coming. Not sure how many banks are going to go under (I think ours will be fine because our owner isn’t a greedy little shit, i.e. he’s not a small-hat) but you’re definitely going to see a contraction in loans given out. Fresh money is going to be hard to come by. I don’t think you’ll see as many defaults as people are panicking over (remember the refi run from earlier) but new house buyers and housing sales will go down, due mainly to a tightening of the belts.

    • Eduardo the Magnificent says:

      I’ll add that there’s a lot of duct taping going on to get borrowers to qualify and to get those loans shipped out the door once they close. A lot of ‘creative solutions’ if you will, for both borrowers and investors. So if you strictly look at lock volume, everything is fine. But the amount of effort being expended behind the scenes to make all of it work has been phenomenal. It will not last. When it takes twice as many man-hours to originate a loan and you have to hunt for new investors every two weeks, a lot of places are going to determine that the juice isn’t worth the squeeze and close shop. The guys who want the big money and he easy money will leave, too. Remember, everything is fine. For now.

  4. fuzziewuzziebear says:

    We really haven’t seen a deflationary crash since the Great Depression. That people are locked in their homes could artificially induce this, but that would go away as soon as they are free to get out.

  5. Obadiah says:

    >What’s going on with the mortgage market?

    Prolly a bunch of fucked-up shit tbh

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