Mortgage Market Share Report March 2011

?For every problem there is a solution which is simple, clean, and wrong.?

~ H. L. Mencken

Banks and other mortgage investors are still struggling with the effects of a bad business model. A model where more than ten percent of the people they were lending money to are not paying them back. For some mortgages, like sub-prime, a third or more of the loans are not being repaid.

To prevent banks from making such a poor business decision in the future, the proposed regulatory solution is to deny many first time homebuyers access to the housing market. Risk retention rules will reduce the number of their choices. Higher rates will be charged by those lenders that remain resulting in fewer borrowers qualifying. And if the indiscriminate application of excessively conservative down payment requirements and credit worthiness algorithms continues, the field of eligible first time homeowners will be even smaller.

It?s hard for me to see how this is a win for anyone but big banks. They can afford the risk retention whereas many smaller competitors can?t. And they can use the new regulatory scheme to justify charging higher margins.

I?ve included with this month?s report a white paper prepared by several real estate and mortgage finance organizations. The paper analyzes the effect that the proposed Qualifying Residential Mortgage rules will have on the ability of first time home buyers to enter the market. Whether or not you agree, the paper does a good job of identifying the issues.

Quick takes about the first quarter of 2011:

Recorded sales in the period are about the same as each of 2009 and 2010 first quarters. Is this really a sign that the market is improved since there are currently no significant federal home buyer incentive programs driving activity? I think so.

Although mortgage originations are up, January was the by far the best month. In our office, refinances have returned to the normal fifteen to twenty percent of originations.

New foreclosures started and recorded sheriff?s deeds both continue to show declines. This trend is about six months old. It?s either a sign that the foreclosure problem locally is in remission or that the process since Robo-signer-gate is messed up beyond belief.

~John Bethell