Lenders Find Footing in Housing Slide
Some Florida home loan lenders peer into the future and feel confident about what they see. Others, however, face the downward momentum in the national housing market and are being forced adapt business plans for softer demand.
As a result, loan officers are launching new cost cuts and risk reduction strategies that suggest growing concern that the outlook is worsening for the $9.5 trillion mortgage industry.
Inside a faltering market
This marks another racheting down of expectations for the big players in a housing market where slowing sales have pushed inventories up 39 percent in the past year and set home prices on the path of decline. Builders of new homes, meanwhile, reported the lowest confidence about their prospects in June than anytime in the past 14 years.
“I’ve never seen a soft landing in 53 years, so we have a ways to go before this levels out,” Countrywide Chief Executive Officer Angelo Mozilo said on a Tuesday conference call. “I have to prepare the company for the worst that can happen.”
At New Century, one of the nation’s biggest subprime lenders, Chief Executive Officer Brad Morrice told Reuters the company has tightened some credit requirements as it puts “more thought into [Florida home loans] you want to make or don’t want to make.”
A few major firms have been foruced to slice up their budgets:
- Countrywide, the nation’s biggest mortgage lender, on Tuesday said it plans to cut as much as $500 million in costs in the next year as it girds itself for an unsettled market.
- Ameriquest Mortgage Co., the biggest subprime lender, saidearlier this year said it will cut more than a third of its 11,000 workers.
- Washington Mutual Inc. has also said it would cut mortgage-related jobs.
While lenders tighten credit requirements to reduce expected defaults on Florida mortgage loans, they are taking new risks elsewhere.
Countrywide, New Century and Thornburg Mortgage Inc. are getting into more lucrative payment-option, adjustable-rate mortgages, products increasing in popularity since borrowers can defer all principal and portion of interest for a period. The lenders conceded the loans have unknown risks as their payments reset higher, but for now are relying on data including credit scores to manage their default exposure.
‘Long way to run’
So far, house prices have not shown an overall decline. But as prices languish or begin to slide, homeowners relying on equity gains to make payments or subsidize other liabilities may begin to default on their Florida home loans.
“The housing correction has a long way still to run,” Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York, wrote in a note to clients.
Still, many economists are anticipating a soft landing. Erosion in the market so far is just a “mid-cycle correction,” said David Seiders of the NAHB. As long as Florida home loan rates do not rise much more and the economy remains strong enough to support jobs, the market will recover, he said.
A look inside the numbers of the Florida housing market reveals some problems, but none are too drastic.
