More to Mortgage Problem than Subprime

When the “subprime” mortgage industry fell, it was easy to criticize. After all, providing high risk loans to people with credit challenges for a high rate of return is gambling. The problem was that the ones at the top did not hedge their bets at all. They eventually went “all in” and found themselves busted out.  Since then, both the mortgage and real estate industries have suffered. And it was easy to blame the Subprime”debacle.”

Yet, there is a disturbing trend still going forward. Fannie Mae and Freddie Mac, the nation’s government sponsored mortgage entities are having trouble. Long known for providing mortgage loans for only upper end credit, and for taking very limited risks, these groups are facing rising delinquencies and foreclosures. This is somewhat confusing…

If Fannie and Freddie typically make only “solid” mortgage loans, how are they facing an increase in foreclosures? Are borrowers with excellent credit suddenly deciding not to pay their mortgages? Maybe a slowing economy is cause job loses that are impacting this? Maybe someone in a declining market is tired of their home being on the market for over a year and are just giving up? Or maybe Fannie and Freddie were more subprime than people thought???

In my humble opinion, I think it is a combination of all of these, and maybe more. In recent years, both Fannie Mae and Freddie Mac began to target lower income and lower credit scores in order to compete with the subprime market. They even negotiated discounted mortgage insurance to cover these riskier deals! (Did the subprime craziness effect everyone’s judgement?)

I am not sure what the root cause of it all is, and we may not know for years to come. However, it is now affecting more than just the poor and those with bad credit.

The bright spot in all of this is that lenders are looking for good loans. And with Spring finally arriving, the Charlotte real estate market is beginning to heat up. Just as the Economic Stimulus plan is designed to pour money back in the system to help get growth going again, if enough people begin to get going in the real estate market, this can all begin to turn around quickly. Action always reduces and eliminates fear. Fear paralyzes action. We need to move beyond fear, get involved and the market will recover through our actions.