DS News

60 RISKY OR UNCONVENTIONAL— THAT'S THE QUESTION Homebuyers with low credit scores or high debt levels as well as those lacking traditional employment are finding it easier to get credit as strict lending requirements put in place following the financial crisis are beginning to erode, according to the Wall Street Journal (WSJ). WSJ states that risky lending is making a return, as subprime and Alt-A mortgages are rebranded into non-qualified loans. Borrowers took out a record number of these loans in 2018, at $45 billion, the most in a decade, and are likely to take out more in 2019. Proponents state that mortgages became too hard to get post-2008, and unconventional loans, such as non-QM loans, could open the housing market to sound borrowers who had been shut out of it. "ere are some weakening standards and weakening practices," said Eric Kaplan, Director of the Housing Finance Program at the Milken Institute on WSJ. "It doesn't rise to the same level yet, to my knowledge, of some of the things taking place just prior to the crisis. But we have to be vigilant." Nonbank lenders are largely the ones extending non-traditional loans, but big banks such as JPMorgan Chase, Credit Suisse Group AG, and Citigroup Inc. have recently been arranging mortgage bonds backed by unconventional loans. Big banks' mortgage arms are still avoiding riskier borrowers, leaving them to nonbank lenders. Despite their rise, the market for unconventional home loans is still small compared with the rest of the mortgage market, as well as its pre-crisis past, when unconventional borrowing peaked at more than $1 trillion. "Still, the increase in unconventional loans shows that lenders are looking farther afield for customers," WSJ's Ben Eisen states. "As the U.S. economic expansion ages and home prices rise faster than incomes for most Americans, the mortgage industry is finding that there is a limited number of cream-of- the-crop borrowers." THE "INVISIBLE FACTOR" DRIVING INTEREST RATES According to LendingTree, half of all Americans would prefer to live in their dream home than pay off their debt. In their study of what Americans would give up to live in their dream home, LendingTree identified what luxuries they would be least, and most likely give up. According to the survey, 42% of Americans would be willing to give up meals out to pay for their dream home. On the other end of the spectrum, 83% are unwilling to give up their smartphone for their dream home. Millennials are more optimistic about owning their dream home than older homebuyers, LendingTree found. According to the survey, 56% of millennials say they will purchase their dream home one day, compared to 28% of baby boomers. A higher percentage of younger buyers are aiming for high-priced homes: nearly 20% of Gen Zers and 15% of millennials say their ideal home costs more than $1 million, compared to just 7% of baby boomers. Still, both of these groups are mindful of costs, saying their dream home is less than $500,000, and both desire multi-car garages and walk-in closets. Additionally, a higher percentage of millennials, around 75%, say their first home was a "starter home," compared to 56% of baby boomers. Millennials are set to take over the market. David Cobb, Regional Director with Metrostudy, told Jacksonville Daily Record that most homebuyers by 2030 will be millennials or younger. Cobb's report, with information from Metrostudy and Neustar, revealed that 51.9% of new home sales in Jacksonville, Florida, were by millennials. Cobb added that the average home size is 2,600-square-feet, which is almost double than the average home in 1973. Young buyers, however, are searching for something different, including energy efficient features, smart technology, and patios. He said Salt Lake City, which has millennials responsible for 70% of home sales, is an example of this new trend. Another study, by the National Association of Realtors (NAR), found that Madison, Wisconsin, had the highest percentage of millennial as a share of its population in 2017. e report stated that millennials made up 32% of Madison's population in 2017, and the share of millennials moving to the area, when compared to non-millennials, was 75%.

• Cover