The bust has hit Boston. Foreclosures are growing at a staggering pace. The once hot-hot-hot Boston real estate market has seen a 63% increase in foreclosures in the first quarter this year. Some of those “creative mortgages” are starting to look “creative” in the horror-movie way that spurting blood and slow-mo death were once hailed as creative film-making.
So is the industry cutting back? Heck, no. It’s full-steam-ahead, more creativity, more loans and more spurting blood to come.
Our own Katie MacArthur pointed out that consumers are beginning to get it. But the lenders don’t want to hear it. They are still looking for the last sucker who thinks stretching like crazy to buy real estate right now makes sense.
One of my mortgage lender friends (yes, I have mortgage lender friends — although they always want to remain anonymous) says it is an over-supply problem. The over-supply is people who sell mortgages.
Back when everyone had 7.5% mortgages and the rates were around 4%, everyone wanted to refinance — and they were right to do so. That meant we needed a lot more mortgage brokers to handle the volume. Banks hired, companies geared up, and the Army of the Mortgage Salesmen was born. After a while, all the sensible refinancings has been done, so the Army moved on to financing a real estate bubble. A while later, they ran out of people who could afford to buy homes, so they got creative — very creative. That blew the bubble bigger, while it put a lot of families at much greater risk. But now that the Army existed, what could it do except sell more mortgages?
So why aren’t the mortgage lenders cutting back now? The problem, says my friend, is that no single bank or investment house owns those mortgages any more. They have passed them along to huge securitized pools, held in diverse ownership. That means a lot less oversight to be sure the big picture on lending makes any sense. And besides, the Army keeps on offering high returns, at least in the short run.
Nationally foreclosures are up 7% this quarter. That’s well behind Boston’s big numbers, but Boston was a leader during the boom. Will it now lead in the bust?