Mortgage Crisis Here We Come – Do Dah, Do Dah
Mortgage Crisis Here We Come – Do Dah, Do Dah
Oh my God, my head is about to explode right now. A couple of days ago I saw this headline and thought: what fresh hell is the Biden administration going to inflict upon us now? In a nutshell, the Federal Housing Finance Agency is looking to eliminate single credit scoring out of the mortgage lending model and trade it for a more equitable process for easier loan access in the name of FAIRNESS. Immediately my brain spat out “mortgage crisis here we come – do dah, do dah” – good luck getting that tune out of your head. Sorry. Then, in the rabbit hole process of finding supporting info, I see that we have a new FHFA director, Sandra Thompson, who is a radical leftist (shocker) who checks all the usual progressive intersectional boxes.
Regular readers know that my day job is in new home sales. I worked on the corporate side of the table from 2002 – 2006, then on the sales side before and after the first mortgage crisis. Currently, I work for one of the largest homebuilders, in the hottest market in the country. I’ve seen and continue to see a few trends over the last fifteen years in the biz. Other than politics, this is my passion and I’m damn good at what I do. What I see coming should scare the living bejesus out of you.
When I bought my first home in Atlanta, it was 2006. I knew we were headed off a cliff. My company at the time had already cut their sales staff by a third. My credit and income inclined my lender to offer me a significant loan opportunity. Instead, I calculated what unemployment would pay me each month and purchased accordingly. Within six months, I was unemployed. I just sold that home (after being underwater for a decade) this past January. If I had taken my lender’s bait, my home would have been foreclosed on in a nanosecond. I would have become a statistic. This is what the FHFA is leading us back into. I am gob smacked. These people are hacks. Watch the following video to see more of what I mean:
Sandra Thompson is more concerned with climate change than with ensuring lenders make sound lending decisions. Which will of course, mean crappy lenders will make crappy loans. Crappy loans mean high foreclosure rates. How any of that affects tornadoes is mindboggling.
Recognizing the threat climate change poses to the housing-finance system (including, says Acting Director Sandra Thompson, structural damage caused by increasingly frequent and intense hurricanes, tornadoes, floods, drought & fire), FHFA has joined @NGFS_ https://t.co/fwLFQYfBfD— InMortgageFinance (@IMFpubs) May 24, 2022
Getting back to the original article in Issues and Insights, the credit scoring model we have traditionally used allows all lenders to make loan decisions based on what we call the middle score. Equifax, Transunion, Experian all report people’s payment history; lenders run your credit and use whichever score is in the middle. NOW, Sandra Thompson wants to open up a can of worms and change all that with a new and untested process. This video is too dry and boring to imbed, but I highly encourage you to watch it if you want to see what’s coming. But as I&I put it:
“If you are befuddled as to why the Federal Housing Finance Agency (FHFA) is contemplating whether to tinker with lending standards during a time of elevated financial insecurity and housing market volatility, then you are not alone. It is further astonishing to wonder how the lessons of the ’08 crash have seemingly been so easily forgotten. As everyone is well aware, the underlying cause of that disastrous economic meltdown was the collapse of the housing and mortgage industries brought about by a previous “innovation:” subprime lending.”
Essentially, Sandra Thompson and the Biden administration wants to look at “nontraditional” credit to open the floodgates to buyers wholly unqualified to otherwise buy a home. This is insane! But as I wrote on this subject last July, this cannot be a shock.
Look, I sell the least expensive homes in Austin. Seriously, I have the most affordable homes to sell within 20 miles of the city. This makes me Santa Clause every week as I finally call very frustrated and defeated homebuyers. Ninety percent of whom have never owned a home before. I see the most risk challenged buyers in the market.
Just this Monday, I had a typical buyer at my desk. She has been saving and working on her credit for a year to make the leap into homeownership. In her mind, she’s ready. After speaking to my lender, who has seen her loan application, she’s a giant red flag buyer, waving in the wind. Her credit score is less than 650. She has just enough saved to put 3.5% down for the minimum FHA loan program and not a penny more. Even with my modestly priced homes, with interest rates climbing, her chance of foreclosure is likely. Why, why would we want to see her flame out? Because she too checks all the right equity boxes.
As I spoke with this young woman, I said, “I want nothing more than for you to succeed. If today isn’t the best day to buy a home, I know you will keep working to make it happen. The last thing I want is for you to buy a home RIGHT NOW, only to lose it in a year.”
Unfortunately, our political hacks in the Biden administration are unconcerned with her fate. They are steering us right back into a mortgage crisis where we taxpayers will be forced to cover the tab. Better start setting the money aside now, that day is coming sooner than you think.
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Feature Photo Credit: House in hands by thinkpanama via Creative Commons, cropped and modified