Margin Call! Mortgage Lenders Are Starting to Go Broke as Loan Volumes Plunge (Fed Chasing Inflation Crushing Mortgage Industry As Mortgage Purchase Applications Are DOWN -41.5% Under Biden While Mortgage Rates Are UP 96%)


by confoundedinterest17

Under President Biden, inflation has soared and The Federal Reserve claims that they want to extinguish the inflation fire by tightening monetary policy … resulting in rising mortgage rates. Under Biden, mortgage purchase applications are DOWN -41.5% while mortgage rates are UP 96%.

(Bloomberg) The US mortgage industry is seeing its first lenders go out of business after a sudden spike in lending rates, and the wave of failures that’s coming could be the worst since the housing bubble burst about 15 years ago.


There’s no systemic meltdown coming this time around, because there hasn’t been the same level of lending excesses and because many of the biggest banks pulled back from mortgages after the financial crisis. But market watchers nonetheless expect a string of bankruptcies broad enough to trigger a spike in layoffs in an industry that employs hundreds of thousands of workers, and potentially an increase in some lending rates. More of the business is now controlled by independent lenders, and with mortgage volumes plunging this year, many are struggling to stay afloat.

Please note that mortgage purchase applications are DOWN -41.5% under Biden while mortgage rates are UP 96%.

Margin Calls
Many other lenders have seen the value of their loans drop, said Scott Buchta, head of fixed-income strategy at Brean Capital, an independent investment bank. The Federal Reserve has tightened rates by 2.25 percentage points this year in an effort to tame inflation, and 30-year US mortgage rates have surged above 5% for government-backed loans. That’s close to their highest levels since the financial crisis, from around 3.1% at the end of last year.  

That’s beaten down the value of home loans made just a few months ago. A mortgage made in January and not eligible for government backing could have traded in early August somewhere around 85 cents on the dollar. Lenders usually try to make loans worth somewhere around 102 cents to cover their upfront costs. 


For a lender whose loans dropped to 85 cents, the losses can be debilitating, even if they aren’t realized yet. On top of that, business is broadly plunging. Overall mortgage application volume has plunged by more than 50% this year, according to the Mortgage Bankers Association. These business conditions are spurring banks that provide lines of credit known as warehouses to make margin calls and cut credit.

“The warehouse lenders in this industry seem to be extremely on top of things in this downturn, unlike in ‘08,” said bankruptcy attorney Mark Power, who is representing creditors in the First Guaranty bankruptcy. “They are making margin calls quickly.”

Banks have emergency funding they can tap in times of crisis, which can often allow them to stay afloat in hard times. But not always: emergency financing from the Federal Reserve is usually only available for solvent institutions with a chance of recovering. In the last downturn, so many banks had so many soured loans and struggling assets of all kinds that hundreds failed. Nonbanks went bust as well. 



Source link

Related articles

CLOZ: Gives Earnings Stability Amidst Market Uncertainty (NYSEARCA:CLOZ)

This text was written byComply withMonetary analyst by day and a seasoned investor by ardour, I have been concerned on the earth of investing for over 15 years and honed my expertise in...

Ebook Evaluate: The Tax-Sensible Donor: Optimize Your Lifetime Giving Plan

The Tax-Sensible Donor: Optimize Your Lifetime Giving Plan. 2025. Phil DeMuth. Alpha Canine Press Charitable giving is a lifestyle for a lot...

This is 3 information factors bulls should watch subsequent

Bitcoin worth is again above $120,000, and the market has clear information to learn as a substitute of simply vibes.Spot pushed by the vital $120,000 stage on Oct. 2 with an in...

EnerMech wins main subsea contract for Australian offshore fuel improvement

EnerMech has gained a big contract to supply subsea pre-commissioning and specialist providers for a serious offshore fuel improvement in Australia’s East Browse basin. The work will help the second section of the...
spot_img

Latest articles

LEAVE A REPLY

Please enter your comment!
Please enter your name here

WP2Social Auto Publish Powered By : XYZScripts.com