Back in the early part of this decade, I made the decision that I wanted to get into the mortgage business. I thought my background in title insurance would soften the learning curve of breaking into the money side of real estate.
I landed my first mortgage position in late 2002. I was “hungry” and eager to learn the “back end” of the mortgage process. I thought it would make me a better loan officer, that I’d actually know what I was talking about when I was ready to go to the sales side of the business.
As I learned more about mortgage products and guidelines, I began to ask my co-workers questions. I soon found out the difference between “A paper” and “sub-prime” loans. It bothered me that money was flying everywhere and people did not need documentation for income or assets. The loans were called “stated/stated”, or “No Income, No Assets, NO PROBLEM” loans.
The theory was that someone could take out a loan, say a 3 year interest only, and when the 36 months was up, they could refinance into either a 30 year fixed loan or another interest only loan because their property’s value would still be going up. Add that to being told they could use a home equity line for home improvement, go on vacation or buy a new car. There wouldn’t be a problem since real estate would never go down again.
Having lived through two oil shocks, the inflation of the 1970’s, five recessions and the stock market crash of 1987, I was uuuuhhhhh….not convinced. A few “old school” co-workers agreed, we agreed we were witnessing the seeds of not only a real estate crash, but that we were probably seeing the foundation of a financial meltdown. That was in 2003 and 2004.
Fast forward to August of 2007. I had just been laid off from my previous mortgage position in June and the credit markets were in meltdown, altough Wall Street and the rest of the country seemed to be going along its merry way. Some of my ex-coworkers turned me on to two web sites that were telling it like it was, ML-Implode.com and Blownmortgage.com.
Monthly Mortgage Resets
Every once a in a while, a chart would appear in blog posts on Blownmortgage, similar to the one that appears above. It shows all the mortgages that would be resetting over a five year period.
As you can see, the amount of mortgages resetting in ’07 and ’08 were very high, with ’09 taking somewhat of a dip.
Look at 2010 and 2011. Many, MANY more resets are coming, mostly Option ARMS, peaking in 2011 and not settling down to relative normalcy in 2012.
When people ask me what I think is going to happen, I point them to this chart. I could be wrong, but I don’t see us recovering from the current economic distress until 2012. When I atteneded a USC Marshall School of Business event earlier this year, someone had heard Sam Zell speak on the status of real estate and when things would stablize. He was quoted as saying, “Stayin’ clean ’til 2013”. I’ll let you make your own conclusions on that one, but I think Mr. Zell is one bright guy.
What does that possibly mean for us? Well, I see a lot more foreclosures coming, and the banks can’t hold on to them forever, but I also see many more short sales coming next year. Servicers are FINALLY (after THREE YEARS) hiring staff to handle all of the files, upgrading their software and streamlining the process.
I don’t think they want to do loan modifications, and foreclosures cost them a lot of money so I think they are finding a happy medium in the short sale process.
Technically, we are in a recovery, but it’s going to bumpy for a couple of more years.