Mr. Mortgage Warns: We Haven't Learned Anything...

Low Mortgage Rates to Spur New Wave of Defaults

Posted on December 26th, 2008 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research

Talk about unintended consequences. The following is significant insight from the street level. This is especially important for those of you thinking that these low mortgage rates will lead housing and the consumer to the Promised Land.

Everyone wants to refinance right now - that’s a fact. Home owners and loan officers around the nation have not been this exited in years over the low rates. Purchases are far and few in between and require solid relationships, so most loan officers love a good refi boom - they are the easy pickens (until now). The media are actually quoting mortgage rates non-stop, which is a complete story in and of itself.

Loan officers and banks are very busy taking loan applications, as reflected in the faulty MBA loan application survey data (Mr Mortgage story out next week). Loan approval times at some banks is at three to four weeks making for a two month start to finish process. Fall-out will be extreme over the near-term as brokers and borrowers switch banks three and four times trying to get the lowest rate available. Trying to hedge this chaotic mess is a mortgage secondary marketing manager’s worst nightmare and can lead to significant losses.

Along side of being one of the biggest consumer ‘bait and switches’ of all time, this drop in rates should set the stage for a significant leg-up in mortgage loan defaults and leg down in house values and consumer / homeowner sentiment.

In my opinion, the government artificially pushing rates down this quickly not only will cost the originators plenty but quickens the pace at which the Alt-A, Jumbo Prime, and ‘Prime’ implosions could begin in earnest.

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