The Banking Industry Will Rebound

There are already tentative signs that the stimulus packages spent by the various governments around the world are having a positive effect. The economy is now showing signs of turning the corner in terms of some key economic data such as the decline of housing prices had bottomed out. Job losses also seemed to top out at around 9.50% (but still a lot of unemployed people). Mortgages have seen a surprising rebound based on the number of successful refinancing deals to avoid foreclosures. All of this is encouraging to the mortgage industry as a whole.

Although the banking industry has been generally blamed for the entire mess, it is safe to say that consumers themselves are partly to blame. Many people who had purchased houses and obtained mortgages did it for pure speculation, hoping that house prices will continue to rise indefinitely despite the lack of a sustainable demand for new residential properties. This lack of demand was validated by the parallel rise in house rentals because people who opt not to buy new houses go for renting houses instead. But with the economy now on an upturn, mortgages are expected to make a comeback but this time on a cautious note. People who saw their properties taken away by lenders are doubly reluctant to assume debts they fear they cannot afford to pay in the future. This is a healthy sign anyway.

The mortgage industry played a key role in causing the financial crisis primarily due to the indiscriminate lending practices employed by the banks. Before the crisis blew up, most lenders were concerned about growing their loan portfolios without giving due attention to the quality of that portfolio. The end result was that a lot of those loans went bad but this time around, bankers are now careful when it comes to granting mortgages. Increased supervision by regulatory bodies will also help to avoid much of the excesses such as the sale of those notorious asset-backed securities to gullible investors. Hedge funds and esoteric financial instruments like derivatives will now be monitored to avoid excessive risk taking.