A panel of international industry experts provides insights and tips to support the market
As economic woes deepen across the globe, their impact on the mortgage market has severely worsened affordability and sparked fears of a housing market crash worse than the financial crisis in 2008.
In MPA’s first-ever global broker power panel, three housing industry experts from the UK, US and Canada came together to discuss how the current market compares to the 2008 real estate collapse. Sarah Tucker, managing director at The Mortgage Mum, Jamie Cavanaugh, president of AmeriFund Home Loans, and Shawn Allen, founder of Matrix Mortgage Global, explored how the mortgage industry is managing the challenges caused by economic uncertainty and what can be learned in the future.
“Here in Canada in 2008, I’ve seen [mortgages] that went from 25-year amortization to 30-year to 35- to 40-year, all the way back down to 25 years in a matter of 18 months,” Allen said. “You know, 2000 prior to 2008, we had 110% financing, and that got eliminated. We had a lot of, you know, different lending partners come into our market, some from Australia, several of them from the US. They came into our market, and then within 18 months, they disappeared.
“So there’s a lot of similarities in respects to prices of homes coming down and appraisals not coming in and just people not being able to get into that into their property. There’s a lot of similarities in the sense that prices were being depressed and it’s just getting more and more difficult to transact and, fast forward to now, with the supply chain issues and all the other issues that are happening, there’s definitely a major cause for concern in this current market. And it’s gonna be interesting to see what transpires in the next 12 to 18 months with rising interest rates.”
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Cavanaugh added a different perspective to Allen’s concerns: “I think that the similarities are the fear, the feelings, the post-traumatic stress,” she said. “But here’s the difference. Back then, we watched investors slowly start to loosen their guidelines and begin to compromise the foundational and fundamental question of all mortgage loans, which is, ‘does the consumer have the ability to repay this whole loan?’ And we’ve completely changed the game there.
“Back then, we had not only loosening of the guidelines on whether they could repay the loan, but we had extremely high loan-to-value ratios and very little equity and very little skin in the game. And we also had all sorts of alternative qualifying methods, including no income and no asset qualifying loan. So you had sort of the perfect storm of very little equity, very little verification of the person’s actual ability to repay the mortgage loan. And then to add to that, you had a program like the adjustable rate and negatively amortizing mortgage loan in which borrowers were making, you know, interest only payments on a loan and the loans were negatively amortizing, and you had so many things leading us down a really bad path.”
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Tucker agreed that while the Great Recession was traumatic for many households and business owners, many of the problems that caused the crash are not the same as they are now.
“I think like Jamie said, the similarities are the feelings and the fear,” Tucker said.
“The Bank of England has recently removed the affordability stress test, and it caused a whole wave of people to come to me and say, ‘oh, here we go, 2008 is happening again.’ Because how reckless do they want to be if they learned nothing? And actually, it was our role to say, ‘no, hang on there still. There’s still an earning-to-income ratio.’ In the background. There are still lots of checks for affordability that are not all scrapped. It’s not all systems go. You can’t just borrow what you want. So, I think it’s up to us really, to translate that.”
Watch MPA’s first-ever global broker power panel now.
