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Mortgage Lenders: If 2020 Brings a Recession, Then What Will Happen to the Mortgage Industry?

May 28, 2019  //  BY Team DataTree


As someone who works in the mortgage industry, you probably have vivid and unpleasant memories of the Great Recession of 2008. The first signs that something was amiss actually took place two years earlier in 2006, when housing prices started to fall. In August, 2007 the Federal Reserve adding $24 billion to the banking system and by September of the following year Congress approved $700 billion to bail out the banks. It was a challenging time for many people, including those who worked in the mortgage industry, who suddenly saw the quickly growing and thriving housing market “bubble” pop in spectacular fashion.

Economists and CFOs Believe Another Recession Is On the Way — Probably by Next Year

Unfortunately, there are a number of key signs that we are headed into another recession — one that experts believe is due to start in 2020. One of these indications, notes CBS News, is that major corporations like General Motors and Verizon have been trimming back their work forces. Politico cites the recent market turbulence as a major red flag that the country’s economy is ready to slow down and possibly enter into an official recession by next year. The Guardian lists no fewer than 10 reasons that conditions in 2020 will be ideal for a financial crisis followed up by a recession; for example, the fiscal-stimulus policies that are currently in place and have moved the country’s yearly growth rate above 2 percent are unsustainable. Also, inflation is rising faster than ever, and the U.S. Federal Reserve is predicted to raise the federal funds rate from 2 percent to at least 3.5 percent by 2020, which will push up interest rates. Forbes recently published an article titled “Is the Next Recession On Its Way?” answering the question in the first paragraph with a resounding “yes.” Taken together, these four reputable sources all seem to agree that a recession is coming sooner rather than later.

Would a 2020 Recession Have an Impact on the Housing Market Like in 2008?

In addition to predicting that we are probably headed into a recession in 2020, the quartet of aforementioned articles also share another key thing in common: none blamed the housing market for the current state of affairs. An article in U.S. News and World Report agrees, noting that 67 percent of experts agree that a “geopolitical crisis” will be the main cause of a recession, not a combination of lenient lending policies and other housing-related issues that led to the last one. Interestingly, the housing market can help the economy get over a recession period; people who have not been affected by the financial downturn are still wanting to buy and sell homes, and current homeowners can still use equity in their houses. Having said all of this, experts admit that certain parts of the country may see their housing markets impacted by a recession; these include larger areas like Los Angeles, New York, Seattle, San Francisco, and Miami. In addition to being huge metropolitan areas, these regions also tend to have higher housing values, so if the economy slows down due to a recession and Joe Average Homebuyer has less money to spend on a home, he probably will not be able to afford a pricey mortgage in these areas.

Speaking of Which, What Happens to Mortgages and the Mortgage Industry During a Recession?

No matter what causes a recession, the country’s financial system will be negatively impacted. Higher levels of unemployment and a slower economy both lead to a decrease in lending and spending, which in turn can negatively impact mortgages, programs, and interest rates — in other words, the mortgage industry as a whole. As for existing mortgages, homeowners who have fixed-rate, fixed-term loans will not be impacted at all. But those who have an adjustable rate mortgage may see their payments rise, if the interest rates go up during the recession. Aspiring homeowners who are looking to buy in the near future should take caution when applying for a mortgage in uncertain financial times. Instead of putting down the minimum for a down payment and maxing out an approval amount, home buyers may wish to put down more money up front, which will help to build an “equity cushion” in the home if and when the economy heads south. As a side note, since healthy savings accounts can help people to get through a recession, home buyers should consider putting aside between three and six months of living expenses — granted, this can be a hefty amount, but any amount is better than nothing.

Mortgage Lenders: Stay Competitive with Mortgage Lending Data and Analytics

While you cannot personally control if a recession takes place or not, there are professional steps you can take to ensure that you stay as competitive as possible. For instance, mortgage lenders leverage Mortgage Lending Data and Analytics Platform from DataTree; the platform offers a number of features and benefits, including the ability to order valuations, verify property and ownership info and find information that was historically considered undiscoverable. This platform can help to simplify the loan production process and ensure that you are getting accurate and current data on a wide range of properties. We're happy to offer a free trial of this program; if you are interested in giving it a try, sign up today!


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