The Surge of Mortgage Lender Bankruptcies Could Trigger Another Housing Crisis

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It’s been a little more than 10 years since the housing crisis of 2008, and while many believe we’re in a much better place now, many experts are concerned about one potential trigger for another housing market crash, Yahoo Finance reports. That trigger is the increasing number of recent mortgage lender bankruptcies.

The housing market is starting to show signs of instability again, with the inventory of resale homes remaining low and rising interest rates contributing to the high cost of selling homes, making it harder for buyers to justify buying a house. And the current market instability has only been made worse by factors such as mortgage lender bankruptcies and the rise of “non-qualified mortgages.”

The current situation with the bankruptcy of a couple of NMQ lenders that occurred due to the drop in the lending volume made experts question these mortgages’ value. They fear that if this trend continues, it could trigger another housing crisis similar to the one of 2008 caused by the unprecedented growth of subprime mortgages.

Will the Real Estate Market Crash Again?

Luckily, today’s stricter mortgage lending conditions make it harder for such a crisis to occur once again, although failures among non-bank lenders could still have a profound impact. According to CoreLogic, a property market analysis firm, the NQM share of the total first mortgage market has begun to rise again: NQMs made up about 4% of the market during the first quarter of 2022, doubling from its 2% low in 2020. As these types of lenders don’t always have access to money or other assets like bigger banks do, it will be hard for them to survive if something goes wrong, which is one of the reasons mortgage lenders are advised to first consider getting another type of loan if they qualify for it.

Precautionary Measures

Because the Fed’s primary focus is raising rates to reduce inflation, it’s unlikely the effects on lending and housing will improve in the near future. With a potential decrease in non-bank lenders, stricter rules for banks, and the Fed’s higher rates, there are plenty of reasons why people should be careful when thinking about buying or perhaps building a house.

To increase the likelihood of their offer being accepted, buyers will have to be “buttoned up.” This means having a good credit score to meet banks’ stricter lending standards and being prepared to make other concessions, like offering more than the asking price or waiving repair costs found during the inspection. On the other hand, those thinking about selling their house may be more inclined to accept all-cash offers, which usually speed up the closing procedure by eliminating traditional mortgages and rising interest rates from the equation.

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For me, keeping up with and sharing the latest news and events is crucial, since we live in a world that’s full of misleading information. Apart from being a full-time reader and writer, and a passionate music and caffeine addict, I love to spend my free time in the kitchen, trying new recipes I can indulge my senses in.

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