“During COVID, our entire industry basically did three and a half years’ worth of volume in about 18 months,” he said. “I’m still not even sure what happened there exactly. That was the craziest 18 months of my life.”
The aftershocks are still being felt. “We’ve seen lenders exit the space. We’ve seen a lot of M&A activity. We’re going to see more. There’s still some contraction that needs to take place,” he said.
Rising premiums may not have disqualified borrowers en masse, but they’re cutting it close. When buyers are pushed into high debt-to-income (DTI) ratios, insurance can become the tipping point. In some cases – especially with condos and townhomes – the structure of insurance policies themselves is creating new fault lines.
“With attached housing, this equation gets a little bit more muddied,” Smith said. “The insurance industry has now exceeded [deductible] limits that Fannie Mae and Freddie Mac accept. So, they’re rendering entire condominium projects what we call ‘unwarrantable.'”
When Fannie and Freddie back away, buyers are forced into the non-qualified mortgage space, facing significantly higher rates and fewer financing options. “There are private label investors out there, but those private label investors all charge more,” he said.