New Mortgage-Backed Debt A Good Investment?
A lot of people subscribe to the notion — I’m one of them — that the safest time to fly is right after a crash. That’s when everyone is at their most vigilant, and when everyone is at their most vigilant . . . bad things are a lot less likely to happen.
By that standard, investors buying mortgage-backed debt now are probably going to do just fine.
The U.S. government, which looks like a (very big) drunk on a spending spree, is currently offering short-term savers no return on their money. After subtracting fees, you’re actually paying for the privilege.
Things are hardly better long-term. If you’re willing to park your money with the government for ten years . . . your rate of return jumps to almost 3% annually. That will pay for the hikes in food, taxes, energy, medical care, prescription drugs, etc. that may very well be in the inflation-tinged pipeline (not).
By contrast, the interest rate on mortgage-backed debt is now around 6%.
“Clean up on Aisle 4 (and 7 and 12 and . . )”
In their belated haste to clean up underwriting standards, lenders nationally have arguably overcompensated in the other direction. According to a senior Edina Mortgage official, there have now been more than 300 credit policy changes just since the beginning of the year.
While the changes pertain to everything from loan-to-value ratios to selecting comp’s to verifying income, the net effect is a much more thorough screen (some might say “gauntlet”) of loan qualifiers than 2-3 years ago. In fact, it’s probably fair to say that loan underwriting standards have never been stricter.
Borrowers who make it through are likely good for the money. That may be more than can be said of Uncle Sam . . .