The U.S. Mortgage Lenders Are Running Out Of Money
The United States of America has a unique system when it comes to becoming a homeowner. If you like a house and would like to purchase it, you would have to pay the down payment first and then get a mortgage, resulting in a monthly payment setup including the interest. So, when people want to purchase their homes, they reach out to banks, lenders, or companies willing to fund their dream homes. Generally, this industry is usually performing well given the fact that there is a mortgage facility that allows people to own a home despite not having the said amount at hand. However, recently this has changed; the U.S. mortgage industry is now seeing its first lenders going broke after the spike in the rates.
The Crisis At Hand
Experts believe this situation could be worse than the housing bubble burst that occurred 15 years ago. Market Watchers are now expecting several bankruptcies in the mortgage industry, which could result in a series of layoffs and a further spike in lending rates. This could be potentially disastrous since this industry employs hundreds and thousands of workers. Whatever business is happening is happening because of independent lenders.
Rise Of Independent Lenders
Nancy Wallace – the chair of the real estate group at Berkeley Haas, the business school at California, Berkeley – shed some light on the current situation. Wallace stated that the nonbanks often find themselves in hot waters when the mortgage markets go down because they are poorly capitalized. According to LendingPartners.com, in 2004, only 1/3 of the top 20 lenders were independent lenders, whereas, last year, 2/3 of the top lenders happened to be independent lenders. In recent years, the space for banks in this marketplace has only shrunk. One reason why the Banks have stepped back from this market is because of the 2008 financial crisis, which opened a space for independent lenders to sweep in and save the day for their clientele, who is looking for someone to finance their purchases.
However, the current problem is that these very independent lenders are now either shutting down or downsizing, despite the low volume of home loan applications. Unlike Banks, independent lenders neither have the privilege of having an emergency program that could help them out during financial setbacks, nor do they have stable deposit funding. They can get emergency funding from the government, but that is all applicable if they can manage their risk well. Now, with home loan applications dropping, the rise in mortgage prices, and the general increase in house costs, funding options are only becoming more and more limited.
With most of the banks out of the picture and the independent mortgage lenders cutting their credit lines, the U.S. mortgage industry better prepares itself for the times ahead.
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