In 2003, lenders extended $3.7 trillion of mortgages; it was a record that many believed we would never come close to again. Enter COVID-19 and a desperate Fed policy to keep the economy afloat. 17-years later, it looks like that record may be broken. In the first 3 quarters of 2020, lenders have extended $2.8 trillion of mortgages, which has led many analysts to predict that 2020 will surpass the 2003 milestone (assuming a stable rate, lenders are extending approximately $900 billion of mortgages per quarter) - All of this during what is likely the catalyst for a paradigm shift in the way America operates.
While COVID has led to the loss of millions of jobs and threw a wrench in sellers’ ability to show homes, it has also led to multiple record-low mortgage rates throughout the year. As a result, millions of Americans have refinanced their mortgages to cash-in on these low rates and reduce their monthly payments or lower the lifetime of their loans. Indeed, of the $2.8 trillion in mortgages this year, refinancing accounted for nearly $1.82 trillion; this is the highest percentage since 2012 according to Inside Mortgage Finance.
The similarities between 2003-2004 and 2020-2021 are not all positive, and we would be wise to remember that those who don’t listen to history are doomed to repeat it. Like 2004, it is likely that 2021 will see a decline in refinancing activity (unless mortgage rates fall below 2.71%). Like 2004, it is likely that this decline in refinancing activity will impact non-bank lenders with high growth expectations after a booming year of business the year prior. It is possible that these nonbank lenders will try to satisfy their growth expectations by loosening their underwriting standards, which could have the net effect of planting the seeds for mass foreclosures. For those who do not remember, we are describing the seeds to the Great Recession in 2008. The question is whether the laws we passed to prevent a repeat of the Great Recession will be effective and we certainly hope they are.
At the Chernov Team we understand that knowledge is power, and knowledge of the refinancing market and its impact on the housing market in general is powerful knowledge indeed. At the Chernov Team we know that whoever comes to the table most prepared leaves with the most, and the Chernov Team always leaves the table with the most.