Mortgage Liquidity Crisis is Like the Department of Homeland Security
by: Brian.Brady on October 10, 2007 01:14:42 4 comments »
I was in Las Vegas, a few months ago, for the Strategic Equity conference. Three days of mortgage speakers and some Vegas living had me ready to get home to my wife and daughter, on Friday afternoon. I blew off the last speaker , jumped in a cab, and headed for Mc Carron Airport. I rushed to the gate to see if I might make it back to San Diego on an earlier flight.; I missed it by five minutes. "No problem", said I, "Can I check in for my originally scheduled flight?"
That flight was cancelled; I was pushed to the next flight, three hours later. That flight arrived late, and when it did arrive, the crew had surpassed their FAA allowed flight time for the day. I was quickly offered a flight through Phoenix, to San Diego. I ran to the Phoenix gate and missed that boarding time by five minutes. Breathless, I arrived back at the San Diego gate to find out that I just made the new flight to San Diego with a fresh flight crew.
This is what it feels like in the real estate markets today. Everything seems to be falling apart. The underwriting models, conceived by the rocket scientists in the Wall Street research departments, created loans that banked on steadily increasing home prices, like we are experiencing in Seattle and Dallas today. What the Buck Rogers types didn't expect was a jerky ride in certain "boom towns" like Vegas, Phoenix, and Southern California. That erratic appreciation, in certain markets, allowed borrowers to get loans based on a steadily increasing market. Lending is a national market. Loans, designed for the gently increasing Dallas market, offered more lax underwriting standards. San Diegans, took advantage of those lax guidelines and sucked the equity out of their homes.
Certain components of the model (rapidly appreciating cities) got ahead of the "flight plan" and screwed everything up. Market participants react to market forces so you can't blame the San Diegans for borrowing the money. San Diegans, in 2005, were borrowing dollars that were earmarked for Houstonians. Houstonians were waiting for the flight to arrive. The Buck Rogers types were building a machine that ran on nytro-glycerin; they didn't know that it could break the sound barrier.
This past summer, the flight delays all came to a head. The Buck Rogers types on Wall Street scratched their head and wondered what the hell happened to their scheduling. While Dallas, Boise, and Seattle were following the flight plan, Southern California has sent all their planes up in the air and were cancelling flights. It was like a Friday night in McCarron airport; nobody knew if they were coming or going. Their response was akin to what the FAA did on September 12, 2001- just ground all the flights until we could ascertain what was happening.
Today , the mortgage market feels like September 15, 2001 at McCarron airport. The security lines are longer, flights are not as frequent, and everyone is looking askance at someone who LOOKS like they MIGHT be a terrorist. Stated income borrowers are the new Al-Qaida. Jumbo borrowers are the Pakistanis that appear to be our friends but look awfully fishy to us. The lending industry will have to go through the very same challenges that the Department of Homeland Security went through in 2002. Underwriters will be extremely cautious, based on your "appearance". Equitable or not, if your loan package could be mistaken for a "covert weapon" you won't be able to board the flight until you are strip-searched.
San Diego mortgage shoppers, looking to trade the nytro-glycerin loan for the garden variety, diesel mortgage, will have a rough go of it for a few years. Security has tightened around the Western United States. Fair or not, lenders have eased back on the throttle because nobody wants to hear...
Uh, Wall Street...we have a problem
Related Posts
San Diego Mortgage Rates Report: August 15, 2007San Diego Mortgage Rates Report: August 16, 2007
San Diego Mortgage Rates Report: August 21, 2007
San Diego Mortgage Rates Report: August 28, 2007
San Diego Mortgage Rates Report: August 13, 2007
· http://blog.ssimms.comGreat analogies of over-reacting, Brian. If only the pendulums in life would stay near the middle ...
Permalink October 10, 2007 09:37:05 · http://www.floridamortgagedaily.comBrian,
I like this site, but I wish you had informed me about it earlier as I just stumbled upon it. As you know, I also fly planes so I need to correct you. The airspace was "slammed shut" by early afternoon on 9/11.
Of course, now I may have to do a post about this post...lol.
Permalink October 10, 2007 11:02:12 You're right Sharon, we're overreacting in the mortgage markets. We didn't overreact 6 years ago but the scrutiny feels like flying in 2002.
Permalink October 10, 2007 11:08:01 · http://www.myhotspringshomes.comGreat anology, not only do the facts really hit home, but it makes you wonder if we all just become complacent with this idea 6 years into the future. Will this just become the norm? or are we going to do something about it? This time just make sure we have an exit strategy if needed.
Permalink October 11, 2007 07:52:28This post has 39 feedbacks awaiting moderation...