JMAC works with brokers in many states around the nation. And in some of those areas, our brokers and their borrowers are asking, “Are we headed into another housing bubble?”
As home prices hit levels seen before the crash or move even higher past those levels, there has been talk that we are approaching a housing crisis. But the housing collapse in 2007 began as a result of sub-prime lenders not being able to sell their mortgages to investors. Investors started investigating these and other A-paper loans being sold to Fannie Mae and Freddie mac and found that these loans were getting approved and sold under minimal underwriting standards.
The difference today is that underwriting guidelines are much stricter since potential homeowners must have income to support a housing payment, and FICO scores are examined to ensure borrowers have the ability to repay. Funds to close are also examined and Appraisal Management Companies are now put into place to ensure the validity of the appraisal. JMAC’s brokers agree that the quality of borrowers seeking a home loan is much higher than in the past, and lenders such as JMAC are more confident that homeowners will continue to make their monthly mortgage payment.
Though minimized, risks are always present. For example, there is interest rate and payment risk for those who have an adjustable rate mortgage. As rates begin to rise, these homeowners could experience a large hike in payments, particularly if their income growth has remained stagnant. As Millennials and other first time buyers begin the process of purchasing a home, the experience of family members or friends losing their homes has prepared these young adults to be more cautious when buying. This is particularly true when these borrowers seek a payment they can afford based upon their current income and debt.
To sum things up, a housing collapse like the one that was seen almost a decade ago is unlikely to happen again due to new regulations in place, stricter guidelines, and smarter borrowing.