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I hear on the financial news, almost everyday, that the mortgage industry is in big trouble. Are people soon not going to be able to get mortgages?
Gerald H. of Athens, GA asks,
Stephen, I hear on the financial news, almost everyday, that the mortgage industry is in big trouble. They say it’s a “liquidity” problem. What does that mean? Are people soon not going to be able to get mortgages?
Gerald, few mortgages are actually held by the bank or the company that funds them. Over the past ten to fifteen years, investors on Wall Street have increased their appetite for higher yield products. With this appetite grew a desire for riskier loans that companies package and sell in pools known as mortgage-backed securities. MBS’s are sold on the open market and are traded much like any other bond, with the expectation that people with mortgages will pay monthly on their obligations, netting an expected yield for the end investor.
As investors realized these loans were not performing, they lost their appetite. Now you have mortgage companies with loans they were planning to sell, but no buyers. They had funded these loans on credit, called warehouse lines, and must sell them to stay in business, even if they are forced to sell at a discount. Many mortgage companies did not have the money to take such losses and have since closed their doors. Unfortunately, Amtrust Mortgage was one of these companies.
The good news is that regular conventional loans are still traded through Fannie Mae and Freddie Mac and those markets remain relatively active. So, while some people needing higher risk loans may not be able to find them, the vast majority of potential borrowers are still in good shape.
As far as Amtrust goes, some of their top loan officers, including myself, saw the problems the company was facing and decided to start a new branch location for VanDyk Mortgage Corporation, one of Atlanta's most well respected mortgage brokers for the past 15 years.
Stephen
If you have a question that you would like me to answer please email me at Stephen@katzmortgageteam.com.
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