A decade after the US housing market collapse, the median home price in the country has climbed back to the pre-crash level in 2007.
While the positive mood looks worryingly familiar, the practice in the home mortgage industry is now vastly different, reflecting the much tighter regulation government introduced after the housing crisis.
I recently bought a property in the United States and chose a small mortgage company for financing.
I found that my mortgage application, which, according to a colleague, was quite easy to be approved back in 2007, now requires lots of paperwork and a much stricter financial scrutiny, even for someone with a secure job like me.
Within the first two weeks after I moved into the new house, I received a notice about my loan being resold.
This is a common practice among mortgage companies, whose chief functions are to originate mortgage loans and hold these loans only for a short term before selling them to institutions.
In contrast, depository institutions such as Bank of America and Wells Fargo tend to hold the loans in their portfolios for a longer term.
A recent study shows that mortgage companies have aggressively expanded their residential mortgage business against traditional banks after the crisis.
Mortgage companies accounted for only 14 percent of the home loan market in 2007, but in 2015 this jumped to 38 percent.
When it comes to FHA (Federal Housing Administration) loans – the mortgages issued for homebuyers with lower income and poorer credit – mortgage companies’ market share rose from 20 percent in 2007 to around 75 percent in 2015.
After the bust of the American housing market, traditional banks became subject to more stringent regulation (e.g., higher capital requirement) for mortgage business, leading to their withdrawal from the market, the study explains.
The data also indicates mortgage companies grow faster in regions where there are relatively more cases of subprime-loan-related lawsuits and where local banks have lower capital adequacy ratio.
The study is based on Home Mortgage Disclosure Act (HMDA) data, which comprises various data related to applicants, property and loan features across almost the entire US market.
Another interesting finding is the stunning increase in market share of the online mortgage companies, which jumped from 4 percent in 2007 to 13 percent in 2015.
According to the study, these companies are using data other than “traditional indicators” like credit history and income to determine their mortgage rate offers.
Perhaps only company insiders would know what those secret numbers are.
The full article appeared in the Hong Kong Economic Journal in Chinese on April 25
Translation by Ben Ng
[Chinese version 中文版]
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