Reintroduction of Moral Hazard in the Mortgage Industry

“Throwing this out there without showing evidence of hardship was an outrageous move, outrageous.”

Photo by DJ Johnson on Unsplash

According to the National Association of Realtors, home sales spiked 24.7% in July from June.

Monthly supply of for-sale houses in United States. Source: FRED.

As the amount of homes on the market continues to drop, we’re summiting a vital question:

How many people are in deferment and what happens at the end of that period?

It’s great that home prices are staying strong and that more people are entering a mortgage. However, the stickiness on the darker side of that coin is the burden that banks are taking on by mandatory deferments.

Specifically, what happens at the end of those deferments and what those numbers look like. David Stevens, who headed the Federal Housing Administration during the subprime mortgage crisis, said that:

“The administration made a huge mistake bringing moral hazard in and thrust extraordinary risk into the private sector that could collapse the mortgage market.”