CoreLogic: “Mortgage Performance Is Beginning to Deteriorate”

By K.K. MacKinstry/LendingLies

Today I listened to a webinar about housing trends hosted by website Housingwire.  Ten-minutes after logging in, I logged off.  Chief Economists from Fannie Mae and the Mortgage Bankers Association discussed economic indicators that were little more than banker’s spin.  They stated that Federal Reserve rate hikes would preserve the wealth effect of home equity among the middle class and that tax cuts would help stimulate the economy.  The economic indicators I have reviewed paint a much different scenario emerging.

Contrarians predict that rate hikes will further slow an already slowing real estate market, and that tax cuts will average less than $1,000 dollars per family and will not have a stimulus effect on the housing market. They also discussed the benefits of the Fed selling off 8 trillion dollars of Mortgage-backed Securities and doubted that selling-off these empty trusts would create market volatility. At that point I couldn’t listen to any more housing propaganda and logged off.

Economic expansion and recession are influenced by loan performance. When the economy is good, lenders increase sub-prime lending but when loan defaults increase, lenders become more conservative, which often exacerbates an economic downturn. The economy appears to be at the point where lenders are giving out riskier loans in an attempt to maintain market momentum with the knowledge that housing markets are cooling from 2016 peaks.

From 2012 to 2016 loan performance improved during the post-recession expansion.  However, over the last year there has been a deterioration in auto, credit card, installment loans and student loans. Only in the last six months has mortgage loan performance started to deteriorate.

Since 2010 loan underwriting has remained relatively even and is a good starting point for the analysis in the post recession economy.

The real estate market thrived in 2015-16 and showed the highest economic growth since the Great Recession.  The labor market was near full employment and steady home price growth were maintained.

However, during 2016, economic growth slowed by a full percentage point and the delinquency rate worsened to 0.17 percent at the 10-month mark.

While performance for the 2017 market is still very good relative to the last two decades, the market shows signs of worsening. Historically, once the mortgage credit cycle begins to deteriorate it continues to do so until the economy bottoms out and the credit cycle begins to improve again.  It appears we may be at the top of the newly created bubble and that we can look forward to a market correction.

Turning points happen quickly.  Speaking to Neil Garfield today on when he expects the market might rapidly decline he replied, “any day now.”  Garfield believes that the more the media feels the need to announce how wonderful things are, that is when consumers should be more cautious.  During April alone, CoreLogic reported that 5.3% of homeowners were late while housing prices continue to rise.
 

4 Responses

  1. Neidemeyer… the next sucker will come from the same pool it always comes from… the taxpayers. Just the GSE’s alone are a big scam… they grab 250 billion in tax dollars, generate free cash flow of 600 billion, and not a penny of the 250 billion is goes to pay down the deficit.

    Whenever lenders have programs for mortgages for straw bale huts, you know things have hit bottom.

  2. Reblogged this on Mario Kenny.

  3. BREAKING NEWS: Canada’s Housing Bubble Explodes As Its Biggest Mortgage Lender Crashes Most In History

    http://www.zerohedge.com/news/2017-04-26/canadas-housing-bubble-explodes-its-biggest-mortgage-lender-crashes-most-history

    Call it Canada’s “New Century” moment.

    We first introduced readers to the company we said was the “tip of the iceberg in Canada’s magnificent housing bubble” nearly two years ago, in July 2015 when we exposed a major problem that we predicted would haunt Home Capital Group, Canada’s largest non-bank mortgage lender: liar loans in particular, and a generally overzealous lending business model with little regard for fundamentals. In the interim period, many other voices – most prominently noted short-seller Marc Cohodes – would constantly remind traders and investors about the threat posed by HCG.

    Today, all those warnings came true, when the stock of Home Capital Group cratered by over 60%, its biggest drop on record, after the company disclosed that it struck an emergency liquidity arrangement for a C$2 billion ($1.5 billion) credit line to counter evaporating deposits at terms that will leave the alternative mortgage lender unable to meet financial targets, and worse, may leave it insolvent in very short notice.

  4. Not only mortgage performance but auto loans are falling apart… years of rolling balances forward and extending terms have hit their logical limit. Now we hear of Fannie/Freddie guideline changes … pretty much tells you the well is dry… where will the next sucker come from?

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