Well, it is subprime all over again, at least according to a new report.
Moody’s Investors Service is predicting that next year lending standards will deteriorate for homebuyers with bad credit. Financial institutions will make it easier to get a new home loan in a market that has few affordable properties.
But while it is not expecting a tsunami of so-called liar loans, Moody’s thinks a higher percentage of mortgages will turn into subprime.
“Reduced home-purchase affordability will continue to drive lenders to loosen credit standards to maintain volumes,” wrote Moody’s analyst Donald Lee in the credit-ratings firm’s 2020 outlook. “With shrinking home affordability, the underwriting quality for non-prime mortgages will weaken as increased lender competition leads to lower standards.”
He added: ““New originators and issuers will enter this market and transactions backed by Helocs, closed-end second liens and loans backed by manufactured homes are likely to return.”
What’s worse is that the mortgages will be added to bond deals without government backing. You could witness a record $32 billion in bond issuance in 2020, up from $9 billion a year ago.
It’s 2006 all over again.
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