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Tough but potentially positive market for mortgage industry March 19, 2007

Posted by Jay Medina in News and Information.
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It’s tough to survive in today’s mortgage lending industry. Many originators, particularly those that have been specializing in the subprime niche of the market, are folding their tents and silently leaving the business. But there’s a bright side of that development for the mortgage industry and consumers.

“We’re seeing 40 or 50 subprime companies a day throughout the country going down in one form or another,” said Angelo Mozilo, chief executive of Countrywide Financial. About two dozen large subprime mortgage lenders nationwide have gone under or stopped making loans, according to Implode-O-Meter, a Web site that tracks closures in the subprime lending industry.

The failure of so many subprime lenders is symptomatic of a larger trend – Wall Street’s loss of appetite for risk, the site reported. With so many mortgages going bad, investment banks have quit backing subprime mortgages and are actually kicking bad loans back to some originating lenders, forcing some of them to close their business. One of the first mortgage products expected to disappear are zero-down mortgages, sometimes known as 80-20s. These are often structured without verification of income to borrowers with impaired credit ratings.

Many loan originators are going out of business during the first quarter of this year, it was reported by the “For Benefit of the Originator” (FBO) association. This could be a positive development for the business generally, they point out. “The skilled mortgage pro does not lose when the market gets worse because the unreliable lenders tend to go out of business or are acquired by others, and the unreliable loan officers go back to doing whatever they were doing before,” it was noted in a FBO report.

“The slowing market fits well in a trend of expansion and consolidation. The market expands until it’s white hot, then cools and consolidates before the next expansion period. It’s in this period that mortgage loan originators can begin to exert influence in a way they have never been able to before. If they play it smart, today’s slow-down can be the catalyst for a new glory day to come for the loan originator.”

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