President Trump recently signed a bill rolling back some “too big to fail” provisions of the Dodd Frank financial reform act. The current Director of the Consumer Financial Protection Bureau, Mick Mulvaney, a past critic of the CFPB is now leading the bureau in this new direction. The question is will the industry get in trouble again? Currently the fastest growing segment of the industry is Non-Prime, which not a duplicate of the old Sub Prime that was a big part of the financial meltdown of 2008, nevertheless bears some very similar elements. Pour the catalyst of greed on this part of the industry and who knows what will happen.
Before we chase that rabbit down the hole let’s look back briefly to 2008 when the financial mortgage markets cratered with the Sub-Prime industry loaning money to anyone and everyone, fueling competition for business, and then selling everything through Wall Street until it all came down in a heap.
In looking at the lending trends today we see lower down payments, higher loan to values and riskier bank statement loans. If we go too far down this path I am concerned the past will repeat itself. Here is an article by Jeffrey Dorfman, writing in Forbes, that mirrors my concern. https://www.forbes.com/sites/jeffreydorfman/2018/05/25/we-have-learned-nothing-from-the-mortgage-market-meltdown/#5854796e5bbc. We now see Non-Prime loans being bundled for sale to third party investors which was another factor in Sub-Prime meltdown.
Before the 2008 meltdown the pendulum, if you will, was at 3 o’clock where it never should have been and virtually anyone could “qualify” for a Sub-Prime loan. After the meltdown that same pendulum went over to 9 o’clock which was very restrictive and kept good borrowers from purchasing homes. In this new trending environment of easier credit qualifications I hope we settle in at a reasonable 6 o’clock where we really should be at and not back where we were prior to 2008. The determining factor will be the same thing that led the industry to ruin, greed. It is ugly, devours everything in its path and is never satiated. Hopefully under Mick Mulvaney’s leadership the past will not be forgotten and solid reasoning will prevail moving forward.