April 28, 2008

Bite Size Bad News 1--First Mortgages

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[I've been reading the business press, including blogs, a lot lately. It's like watching a train wreck in slo-mo. That's where I got the oil strike story I posted yesterday. Since I lack both time and theoretical chops to write much in the way of long analyses of the unfolding economic crisis. I'm trying a new thing--occasional short pieces highlighting one or another tidbit that has caught my attention.]

The weekend edition of the Wall Street Journal provides one more reason the housing crisis isn't going anyplace soon. It's not just that the supply of houses for sale is up (to 2.3 million according to Bloomberg News), what with falling sales, foreclosures, overproduction of new units and rising fuel costs making the exurbs look much less attractive. The banks are acting snakebit:
Lenders are demanding higher credit scores, mandating private-mortgage insurance on many more loans, and requiring larger down payments. Fewer first-timers qualify for the house they want, or they're paying a larger monthly amount to own it.
In an interview with an 89-year-old financial historian (on the same page) we get a sense of what this exercise of caution on the part of banks and other mortgage lenders may really represent on a much larger scale:
When you think about how all of this will work out in the long run, we are going to have an extremely risk-averse economy for a long time. The lesson has painfully been learned. That's part of the problem going forward. You don't have a high-growth exit from this, as you've had from other kinds of crises. We won't have a powerful start, where the business cycle looks like a V. Here, the shape of the business cycle is like an L, where it goes down and doesn't turn up.

1 comment:

Anonymous said...

I'll say.
On my job I'm the perfect borrower-- scads of subsidy grant funds, non-profit (CRA credits up the wazoo,) 30-year agency credit history, lower loan-to-value ratio than typical homebuyer. We're still able to sell houses, even in this market. We've always been like gold to mortgage lenders.
Even we're having trouble getting loans now.