Expert Examines National, California Mortgage Risk
How risky is the mortgage game these days? Good question!
In an attempt to ascertain that, the Orange County Register sat down with mortgage expert Mark Fleming, chief economist at CoreLogic.
Below are excerpts from his interview with the newspaper, in which he describes his take on the dicey California home loan business…
Q: What’s your view of the level of risk in the U.S. housing market and how it is changing? Key problem areas?
A: Depending on where one resides the risks are very different.
The middle parts of the country are facing issues because of local economic factors causing unemployment and foreclosures to rise.
The coasts generally have less economic market risk, but instead face issues of housing affordability and payment shock because of the popularity of option ARM (adjustable-rate mortgage) and negative amortization loans.
Q: What about Orange County?
A: Orange County is the classic coastal California housing market with a strong economy but affordability and payment shock issues.
Q: When you say risk, in simple words, you mean …
A: We define risk as the likelihood of serious mortgage delinquency. This is costly to a mortgage lender and painful to the consumer because it can result in foreclosure and financial stress to the consumer.
Q: What factors are driving risk levels? How do they differ?
A: Risk levels are actually growing down at the national level, primarily due to the strong employment markets measured nationally. Employment, or the opposite of unemployment, is one of the strongest drivers of serious delinquency.
But the national numbers mask what is going on regionally. Those markets with higher than average unemployment are also sometimes markets that did not experience strong home price appreciation and are therefore more at risk. Urban areas in Michigan, Ohio, and Indiana are currently at high risk.
Q: What your outlook for the market and risk? Any region you think will become the next trouble spots?
A: I am most interested in how the coastal markets will deal with the housing affordability crunch and payment shock.
Most coastal markets are not expected to have economic imbalances, so the unemployment drivers are less troubling. Given relatively strong economic markets, the concern is that if mortgage loan affordability remains low - and keeps buyers out of the market and payment shock causes an increase in the need to sell - we could see an imbalance in supply vs. demand which would have a downward pressure on price levels.
This is what we will have to keep an eye on in the next two years.
SOURCE: Orange County Register