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 The Story Behind the Mortgage Crisis in Michigan Just a few years ago, the mortgage industry was in full swing.
Non-traditional mortgages, variable rate, low documentation, reverse and
payment option loans were highly sought after by financial institutions.
People were qualifying for loans and buying homes left and right. Things
were going so well in the mortgage industry, how did it all fall apart?
“As the delinquencies started to rise, the demand for these types of mortgage-backed securities dried up. This caused many lenders to tighten their organizations since the market place to sell was not available. With many more homes going into foreclosure and the inventory of homes for sale increasing, home prices started to decline,” Zito said. American Home Mortgage is just one example of a company crippled by the mortgage crisis. On August 3, 2007, American Home announced it would close down most of its operations and lay off nearly 7,000 employees. All Headline News reported that American Home Mortgage CEO Michael Strauss said, “Unfortunately, the market conditions in both the secondary mortgage market as well as the national real estate market have deteriorated to the point that we have no realistic alternative." According to Zito, the rise in interest rates, foreclosures and lack of demand for non-traditional mortgages is the main cause of the current mortgage crisis in this state, as well as nationally. He also feels the poor economy continues to be a major driver in Michigan. He said some of his financial institution clients have experienced problems due to inflated home appraisals with properties that are now in foreclosure, and with no- to low-documentation mortgages. The advice Zito offers clients is to limit the amount of no-documentation mortgages put on the books and spend more time in the underwriting process to determine the amount the borrower will be able to repay. “If you are going to offer non-traditional loan products (interest only, payment options, reverse mortgages) make sure your personnel are well seasoned in experience with these products and possess the ability to underwrite these loans in the current environment,” Zito said. As for the future, he believes banks and credit unions need to carefully monitor their portfolios for impairment because of current pricing fluctuations in mortgage backed securities. Also, with credit tightening at financial institutions, the likelihood for validation of representations on mortgage applications will most likely increase. Top |
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| PO Box 5068 Troy, MI 48007-5068 Phone: 248.267.3700 Fax: 248.267.3737 E-mail: macpa@michcpa.org | |
