Inventory of resale homes is low, and the rising interest rates are making it harder for buyers to leap into home ownership, potentially causing a surge of failures comparable to 2008. We are now seeing a rise in mortgage lenders' bankruptcies, which is troubling news for an already uncertain market.
NQM and Bankruptcies
Now there is an uptake in NQM loan programs that use non-traditional income verification, which includes self-employment, among other non-traditional income situations, that real-estate experts are beginning to question. Moreover, many of these NQM lenders are now filing bankruptcy and shutting down, further alarming home sellers.
Are Failed NQMs a sign of a meltdown in the market?
Perhaps not. However, non-bank lender failures might still significantly impact home buying as many potential buyers will be left out of the market since they will struggle for approval. This means fewer buyers for the many houses already waiting to be purchased.
We should note that NQMs only made up about 4% of the market, but this has doubled since 2020. The growing popularity of NQM financing can be attributed to the government's tighter lending rules which have left out significant potential buyers. While the popularity of NGM has increased, the Federal Reserve is moving to raise interest rates.
With big changes and values dropping, NQMs do not have the same access to emergency financing or other assets they can tap into as a bank lender can. Banks also have access to safer loans due to their strict income qualification practices. They also don't feature interest-only payments.
We should also note that if you have a mortgage through a lender that is going bankrupt, your mortgage still has to be paid. The FDIC will often pick up the orphaned mortgages. While many factors can affect the market, interest rates carry immense significance. With a focus on raising rates to compensate for inflation, it makes sense to conclude that lending and house markets will continue to feel these effects.
Higher mortgage rates will dictate how much buyers can afford and affect sellers who will eventually become buyers. These, coupled with the non-bank lender problems and stringent rules for bank lenders, create caution for all sides.
What Does This Mean for Buyers and Sellers?
Buyers will need to ensure their credit is in order, and they might need to consider other tactics, such as higher offers to get into a home. However, many cannot afford higher prices due to higher lending interest rates. This can cause a problem for sellers, who will now be more motivated with cash offers to erase rising interest rates from the picture.
We will also start to see a rise in cash offers from real estate investors to ease the changing lending restrictions. Cash buyers like The Trusted Home Buyer offer competitive offers, quick closings, painless transactions, and quick closing dates. This will help deter the painful process of finding buyers in a highly unpredictable housing market.
If you need to sell your home fast in Arizona, The Trusted Home Buyer can help. We are here through the market uncertainty and offer a fast, fuss-free process.
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