Aug 20, 2007

The Mortgage Meltdown Part 1

The mortgage companies have shown extreme vulnerability to this recent drying up of the availability of instant funding for brokered home mortgages. As I count, 30,000 to 40,000 people have seen their livelihood also dry up. Part 2 will cover the future of the mortgage industry and who the winners will be.

Part One

The widespread closures and layoffs in the mortgage industry is more than just a slow down or a shakeout, it directly points to a flawed business plan. The same question keeps popping up; should a company based on a business model that can not withstand a short term drying up of “borrowed” money survive.

Of course the last ten years have brought home ownership to more Americans than ever before; many of us have been able to buy the American dream using non-conventional loan programs. But the problems in the industry didn’t start with the average home owner, the problem was started by speculation, the belief that you can build and they will come, the belief that what you charge will become the new base line for pricing and the belief that all property will automatically grow in value.

This was the part of the industry that was begging for a shakeout. But as the shakeout continues, some other areas of the mortgage industry that are normally unseen have shown extreme weakness to any tightening of the credit flow.

The party is over. As the promised above average returns dry-up for investors, and the values of the underlying assets diminish, the pools of investor money that was used to fund these mortgages are disappearing and the investors are taking what is left and heading for greener pastures. This part is bad and is causing enormous problems for many, but the overall effect is that all debt instruments are being revalued and the less than squeaky clean are now experiencing massive withdrawals.

This is far from over and what effects it will have on the average Joe and Jane are yet to be seen, but our for those that are suddenly put out of a job, the meltdown has literally hit home.


bruce said...

Who should I get in contact with about a states own laws about mortgage broker bonds and as such, how would I get a mortgage bonds form? I life in England and am considering moving to America, don’t know where yet however I was doing some general reading about housing and came across the term mortgage broker bonds and am a little confused, is it a mortgage or a loan to acquire a mortgage?

Also if I want to set up life insurance do I need insurance bonds? Or can I simply open a policy with a company? I’m a little confused by some of the jargon. I am not moving anytime soon but thought I should be aware of things I will need to understand.