First Guaranty Mortgage – a Non-Bank Lender out of Dallas – just declared Chapter 11 Bankruptcy and won’t make any new loans. LoanDepot, another non-Bank Mortgage Lender, is losing money and could be next.
A wave of Bankruptcies in the US Mortgage Market could trigger an even bigger Housing Crash. Because as Lenders go out of business, fewer home purchase loans will be made to homebuyers in the Housing Market. Which would lower demand and cause Home Prices to Drop.
First Guaranty Bankruptcy Article:
Actual Bankruptcy Filing: https://fingfx.thomsonreuters.com/gfx/legaldocs/zdvxoewmkpx/mortgage%20first%20day.pdf
WSJ Non-Bank Lender Article:
What’s scary is that 68% of Mortgages in the US Housing Market are made by Non-Bank Lenders. Even higher than the 2008 Subprime Crisis. This suggests huge amounts of Systemic Risk in the Mortgage Banking System.
What created this problem in the first place? The Federal Reserve. Back in 2008 they started buying Mortgages / Mortgage Backed Securities and now the Fed owns $2.7 Trillion – roughly 25% of the Entire Mortgage Market. The Fed and Jerome Powell were subsidizing lenders to make loans during this period.
But now they are no longer doing that, and could sell off their Mortgage Portfolio. The result is higher Interest and Mortgage Rates. And big problems for many Non-Bank Lenders with questionable financials such as LoanDepot.
These issues in the Mortgage Market are occurring just as Wall Street Investors are starting to sell off their homes in the US Housing Market. Starwood Capital just announced they are selling a $1 Billion single-family home portfolio. A sign that other Wall Street investors could follow suit.
The combination of Mortgage Lenders Going Bankrupt + Wall Street Investors selling is a sign that the US Housing Crash is just getting started.
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