Mortgage 2.0: How will Industry Changes Affect the Evolution of the Mortgage Process? (MISMO Memo‪)‬

What a difference a year makes. Last April, news stories about a "subprime problem" were just beginning to gain traction, and many analysts felt that the predictions of doom and gloom were greatly exaggerated. Now, recent economic data has reinforced the notion that the U.S. economy is very near if not in a recession, some lenders have gone out of business, rising numbers of borrowers are facing foreclosure and some of the most powerful companies in the financial, investment and mortgage industries are reeling. How did we get here, and how did it happen so fast? Most analysts point to a "perfect storm" of events: First, we were in a dot-com-like bubble of housing speculation, where investors and most average homeowners were convinced housing prices would never stop rising. This encouraged risky borrowing--interest-only loans, adjustable-rate mortgages (ARMs) with potentially large payment shock at reset, and more. Why worry if the property would continue to see double-digit gains each year? Second, the share of subprime loans was rising dramatically as lenders and investors became less concerned about the risk involved. Third, new-construction starts grew in an effort to keep up with booming demand in certain regions (Miami and Las Vegas, for example). Along with all of this, our economy was slowing and starting to show some effects of the deepening housing recession.