The real estate industry is in a race to the bottom with its mortgage-backed securities (MBS) industry.
Many MBS firms are trying to raise money by charging a premium for borrowers who take out higher-risk mortgages.
Some are selling high-risk, low-return mortgages that make people less likely to stay in the mortgage-securities industry.
And while the industry says the crisis is a problem of bad policy, the data show the industry is losing its competitive edge, according to an analysis of the data by the Center for Responsible Lending, a nonprofit group focused on the economy.
“This industry is a massive winner in the crisis,” said Scott Bensinger, director of the Center.
“The only way to stop this bubble is to end all the bad policy.
It’s an industry that’s in desperate need of a major shakeup.
And it’s been the worst loser.”
One major culprit?
The government’s recent decision to stop making mortgage insurance a primary source of income for many low-income borrowers.
As a result, most low- and moderate-income people who qualify for government-insured mortgage insurance are unable to get loans, Bensingers said.
Bensingson said many of the MBS companies that are now offering higher-than-normal interest rates on MBS are selling the mortgages to borrowers who are not eligible for mortgage insurance.
The result: MBS loans are now much more expensive than they were just a few years ago.
“You have the most toxic industry in America and you’re not going to be able to stop it,” Bensingons said.
But while MBS has been a big winner for MBS-backed mortgage-related businesses, the industry isn’t losing much in terms of profits.
The mortgage industry’s annual revenue fell 6.6 percent in 2016 from a year earlier, to $1.18 billion, according the Mortgage Bankers Association.
And its total revenue was down 6.3 percent in the first quarter of this year.
It expects that number to increase to $2.8 billion in 2017, the first full quarter of 2018, according a report released by the MBA in February.
“These declines were driven by a combination of the government’s policies that reduced eligibility for mortgage-insurance, and a number of factors, including changes to the mortgage market,” said Brian Gollin, vice president for financial advice and research at the Mortgage Brokers Association.
“MBS remains a significant driver of the overall MBS business, but this market is facing substantial competition from alternative forms of credit.”
The MBA report also noted that the mortgage industry has been losing customers, a trend that has been seen in many other industries.
For example, the auto industry is seeing a surge in people who want to sell their vehicles for use as collateral for mortgage loans.
While those sales have been strong, the average rate of interest paid on the loans that they make is still more than twice as high as the average annual rate paid on mortgages, according as a result of a recent federal audit that found a number and types of MBS were failing to meet the standards of insurance.
“It’s the largest mortgage market in the world and we’ve been able to continue to make the payments on those loans at low interest rates because of the low-cost and high-quality MBS we have,” said Peter Osterholm, president and chief executive officer of Home Mortgage Servicing Association of America, a trade group representing the industry.
“There is a lack of confidence that MBS will continue to work in the face of the crisis.”
