Will Recent Real Estate History Repeat Itself?
The director of the Federal Housing Finance Agency recently announced that Fannie Mae and Freddie Mac were planning to bring back some of the same types of lending criteria credited with contributing to the last crisis in housing (such as lower down payments, etc.). The intended objective is to further stimulate the housing market, which has recovered some, but is still well below highs seen in 2006 (see graph below).
The question for decision-makers is not whether the FHA is making the right decision, but, how could changes like this impact credit unions? Consider the impact not just today, but 4 or 5 years into the future:
- Will this create “artificial” demand for housing, potentially leading to another real estate bubble?
- How could this impact second mortgages? Both current loans and future demand for second mortgages?
- How did your credit union fare through the last mortgage cycle? What changes would you make if a similar scenario played out again?
- If the more lax lending standards became prevalent again, how could this impact the balance sheet choices your credit union is making? Would current asset allocation (concentrations) need to be re-evaluated?
- How many other market participants will also choose to follow the lead of the agencies and lower their standards?
- How does this impact the mortgage volumes for those credit unions that continue to adhere to stricter lending standards?
Given the impact underwriting changes could have, it may be a good time for credit unions to evaluate their mortgage programs and their appetite for risk, making sure that decision-makers are on the same page before any major issues materialize.
