Question

Describe the current state of the mortgage industry. How does it compare to the state of the mortgage industry just after the subprime mortgage crisis?

Answer 1

ANSWER

Current mortgage industry is more regulated as compared to the period during 2008 financial crises. Now, the economy is booming.One important difference in housing finance today that makes a financial crisis of the type and scale of 2008 unlikely is housing finance is harder to get today. The riskiest mortgages with no down payment, unverified income, and teaser rates that reset after two years—are not being written at anywhere close to the same volume. Further, Unemployment conditions is drastically low comparatively.

Housing market has since recovered in most American markets. Lending today is stricter. It is so strict, in fact, that some in the real estate industry believe it’s contributing to a housing shortage that has pushed home prices in most markets well above their pre-crisis peaks, turning younger millennials into a generation of renters. Today, increased pricing combined with rising interest rates is ushering in a climate in which demand for refinances and purchases is limited.

During the period of 2008 crises, poor credit rating people are disqualified to apply for conventional mortgage application due to which US banks came out with special type of loan- subprime loan. During that period Housing demand was in excess of supply in contrast with today's scenario. Subprime mortgage crises was characterised by high interest rates, lax regulations, poor quality collateral, less monitoring of credit quality and little efforts at remediation. But now mortgage market is more stable comparatively because of the qualified mortgage provision. As a result, serious mortgage delinquency rates and foreclosure rates have diminished to practically nothing since the crises.