It was Charles Mackay, the 19th-century Scottish journalist, who observed that men go mad in herds but only come to their senses one by one.
We are only at the beginning of the financial world coming to its senses after the bursting of the biggest credit bubble the world has seen. Everyone seems to acknowledge now that there will be lots of mortgage foreclosures and that house prices will fall nationally for the first time since the Great Depression. Some lenders and hedge funds have failed, while some banks have taken painful write-offs and fired executives. There’s even a growing recognition that a recession is over the horizon.
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Nov. 28 (Bloomberg) — The number of mortgage applications in the U.S. dropped last week, led by the biggest decline in refinancing this year.
The Mortgage Bankers Association’s index of applications to buy a home or refinance a loan decreased 4.3 percent to 652.5 from 681.7 the prior week. The group’s refinancing gauge slumped 15 percent, the most since December, while purchases rose.
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The outlook for house prices is getting even gloomier as traders on the Chicago Mercantile Exchange bet on steep price declines and the number of homes for sale grows.
Traders on the CME expect home prices in 10 major cities to drop an average of about 10% from mid-2007 to November 2011, according to an analysis by Tradition Financial Services Inc., New York, of prices for housing futures traded on the exchange.
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In your opinion, what will this relapse do to mortgage markets?
It’s likely to get bloodier this year and into the next — many more lenders will go out of business. I’d expect to see wholesale and correspondent lending practically disappear, especially in non-conforming marketplace. Retail origination will take center stage as lenders retreat to a channel they feel they can better control. And that will accelerate job losses in the mortgage sector.
Many companies that survived this first wave will catch their breath just in time to be hit again — and many won’t be ready for it. Others, like Countrywide, know what’s coming — the question is whether they’ve done enough to be able to ride it out.
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