Contact us
CALL US NOW 1-888-GOLD-160
(1-888-465-3160)

Mortgage Lenders Loosening Credit Standards as Home Prices Spiral Upward

  by    0   0

Remember back when mortgage lenders loosened credit standards making it easier to get a loan and blew up a giant housing bubble?

That’s happening again.

According to a report released by Fannie Mae, lenders facing lower profit margins are trying to expand the borrower pool.

Facing constrained mortgage demand and a negative profit margin outlook, more lenders say they have eased rather than tightened home mortgage credit standards, according to Fannie Mae’s third quarter 2017 Mortgage Lender Sentiment Survey. Across all loan types – GSE Eligible, Non-GSE Eligible, and Government – the net share of lenders who reported easing credit standards over the prior three months reached a new high since the survey’s inception in March 2014, after climbing each quarter since Q4 2016.”

To put this in starkest terms, mortgage companies are lending out a lot of money that probably won’t get paid back.

The demand for mortgages is dropping. According to the report, demand over the past three months has dropped to the lowest third-quarter reading in the past two years.  Meanwhile, demand for mortgage refinance has also dropped off a cliff.

Overall, the refinance market remains a stark contrast from a year ago, when the net share reporting rising demand over the prior three months hit a survey high.”

The report says revised, more favorable guidelines for Government Sponsored Enterprise (GSE) loans such as Fannie Mae have “helped to bring about more easing of underwriting standards for those loans.”

In other words, it’s easier for people to get loans they won’t be able to pay back.

So, why is demand for mortgages falling. Part of it likely has to do with rising home prices, according to a recent article on Wolf Street. The S&P CoreLogic Case-Shiller National Home Price Index for June jumped 5.8% year-over-year. At 192.6, the index has surpassed by 5% the peak in May 2006 of the housing bubble.

The Federal Reserve insists there isn’t enough inflation. It apparently doesn’t know where to look. We’re certainly seeing it in the housing sector. Not to mention the giant stock market bubble.

It’s interesting that housing prices have increased so much under the radar. We haven’t heard a whole lot about it in the mainstream media. But there are clearly some parallels between what we’re seeing today and the dynamics in play leading up to 2008. Of course, you never know how such things will play out, but it should cause at least a little concern.

The loosening of credit standards in the mortgage world is taking place within a broader context. Consumer debt in the US has skyrocketed. According to the latest quarterly household debt and credit report by the Federal Reserve Bank of New York, aggregate household debt increased for the 12th consecutive quarter. It now sits at $12.84 trillion, a level $164 billion higher than the previous peak of $12.68 trillion set in the third quarter of 2008.

The New York Fed recently issued a red flag warning on credit card delinquency. The bank said both early and serious delinquencies went up from last year, and called it “a persistent upward movement not seen since 2009.”

We’ve seen this film before. And like a lot of sequels, followup doesn’t promise to be any better than the original. It certainly appears we are heading toward the end of the latest up cycle. When it will crash, which bubble will pop first, and how it will all play out remains to be seen, but it certainly looks like all the dominoes are in place.

WhyBuyGoldNowBanner.070815.590

Get Peter Schiff’s most important Gold headlines once per week – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!


Related Posts

Silver Joins Gold at the Party

Silver has finally joined gold at the party. In the last week, the price of the white metal has moved up from $15.51 to $17.35. (as I type this on Tuesday morning May 19) That’s an 11.9% increase. With the jump in the price of silver, the silver-gold ratio has dropped from over 113-1 earlier […]

READ MORE →

QE Infinity: Money Supply Grew at Record Rate in April

The money supply growth rate surged to an all-time high in April as the Federal Reserve created cash at an unprecedented rate through quantitative easing and other money-creating monetary policies. According to Ryan McMaken at the Mises Institute, the only time the Fed has come close to this level of money creation was in the […]

READ MORE →

Staggering April Budget Deficit Just the Tip of the Iceberg

The April federal budget deficit came in at a staggering $738 billion as government coronavirus stimulus began flowing through the pipelines and revenue dipped due to the government lockdowns.

READ MORE →

ETF Gold Holdings Set Yet Another Record

Gold continued to flow into gold-backed ETFs, setting another all-time record in April. Globally, funds added another 170 tons of gold last month amounting to $3.9 billion, according to the latest data from the World Golf Council. It was the sixth straight month of net inflows.

READ MORE →

Household Debt Was $1.6 Trillion Higher Than ’08 Peak Before COVID-19

Total household debt was over $1.6 trillion higher than the previous peak in 2008 even before the full force of the coronavirus pandemic government shutdowns hit the economy. Household debt increased by $155 billion (1.1%) in Q1 to a total of $14.3 trillion, according to the latest data released by the New York Fed. The […]

READ MORE →

Comments are closed.

Call Now