Mortgage Lending – Dennis Tubbergen

The Coming Storm in Real Estate

Did you hear about the latest lunacy out of Washington?

Mark my words; it will create yet another headwind for a real estate market that is beginning to flounder without this change.

Seems that homebuyers with good credit and larger down payments will now pay more in mortgage origination fees than poorly qualified, more marginal home buyers.

Really.

You can’t make this stuff up.

This from “The New York Post” (Source: https://nypost.com/2023/04/16/how-the-us-is-subsidizing-high-risk-homebuyers-at-the-cost-of-those-with-good-credit/)

A little-noticed revamp of federal rules on mortgage fees will offer discounted rates for home buyers with riskier credit backgrounds — and force higher-credit homebuyers to foot the bill, The Post has learned.

Fannie Mae and Freddie Mac will enact changes to fees known as loan-level price adjustments (LLPAs) on May 1 that will affect mortgages originating at private banks nationwide, from Wells Fargo to JPMorgan Chase, effectively tweaking interest rates paid by the vast majority of homebuyers.

The result, according to industry pros: pricier monthly mortgage payments for most homebuyers — an ugly surprise for those who worked for years to build their credit, only to face higher costs than they expected as part of a housing affordability push by the US Federal Housing Finance Agency.

“It’s going to be a challenge trying to explain to somebody that says, ‘I worked my whole life for high credit and I’ve put a lot of money down and you’re telling me that’s a negative now?’ That’s a hard conversation to have,” one worried Arizona-based mortgage loan originator told The Post.

“It’s unprecedented,” added David Stevens, who served as Federal Housing Administration commissioner during the Obama administration. “My email is full from mortgage companies and CEOs [telling] me how unbelievably shocked they are by this move.”

The tweaks could further complicate the strenuous mortgage application process and add more pressure on a core segment of buyers in a housing market already in the midst of a major downturn, the experts added. The average 30-year mortgage rate is hovering at 6.27% as of last week — up from about 5% one year ago and more than twice as high as it was two years ago, according to Freddie Mac data.

Under the new rules, high-credit buyers with scores ranging from 680 to above 780 will see a spike in their mortgage costs – with applicants who place 15% to 20% down payment experiencing the biggest increase in fees.

“This was a blatant and significant cut of fees for their highest-risk borrowers and a clear increase in much better credit quality buyers – which just clarified to the world that this move was a pretty significant cross-subsidy pricing change,” added Stevens, who is also the former CEO of the Mortgage Bankers Association.

LLPAs are upfront fees based on factors such as a borrower’s credit score and the size of their down payment. The fees are typically converted into percentage points that alter the buyer’s mortgage rate.

Under the revised LLPA pricing structure, a home buyer with a 740 FICO credit score and a 15% to 20% down payment will face a 1% surcharge – an increase of 0.750% compared to the old fee of just 0.250%.

When absorbed into a long-term mortgage rate, the increase is the equivalent of slightly less than a quarter percentage point in mortgage rate. On a $400,000 loan with a 6% mortgage rate, that buyer could expect their monthly payment to rise by about $40, according to calculations by Stevens.

Meanwhile, buyers with credit scores of 679 or lower will have their fees slashed, resulting in more favorable mortgage rates. For example, a buyer with a 620 FICO credit score with a down payment of 5% or less gets a 1.75% fee discount – a decrease from the old fee rate of 3.50% for that bracket.

When absorbed into the long-term mortgage rate, that equates to a 0.4% to 0.5% discount.

The FHFA-ordered overhaul of LLPAs affects purchase loans, limited cash-out refinances and cash-out refinance loans.

Yep, you read that correctly. If you have a credit score of 770 and have 20% down, you’ll now pay more for your mortgage, while someone with a 600 credit score, up to their neck in debt, will pay less.

This will be an additional drag on real estate moving ahead in a real estate market that is already struggling. While residential real estate is slowing, the commercial real estate market is really hurting, with more pain on the horizon.

This from “USA Today” (Source: https://www.msn.com/en-us/money/realestate/commercial-real-estate-is-headed-for-a-crisis-worse-than-2008-morgan-stanley-analysts-say/ar-AA19Bwyd)

In February, a PIMCO-owned office landlord defaulted on an adjustable rate mortgage on seven office buildings in California, New York and New Jersey when monthly payments rose due to high interest rates.

Brookfield, the largest office owner in downtown Los Angeles, that month chose to default on loans on two buildings rather than refinance the debt due to weak demand for office space.

They are a bellwether for what is likely to come, as more than half of the $2.9 trillion in commercial mortgages will be up for refinancing in the next couple of years, according to Morgan Stanley.

“Even if current rates stay where they are, new lending rates are likely to be 3.5 to 4.5 percentage points higher than they are for many of CRE’s existing mortgages,” wrote Morgan Stanley Chief Investment Officer Lisa Shalett, in a recent report.

Even before the collapse of Silicon Valley Bank and Signature Bank in March, the commercial real estate market was dealing with a host of challenges including dwindling demand for office space brought on by remote work, increased maintenance costs and climbing interest rates.

With small- and medium-size banks accounting for 80% of commercial real estate lending, the situation might soon get worse, says experts.

Commercial property prices could fall as much as 40% “rivaling the decline during the 2008 financial crisis,” forecast Morgan Stanley analysts.

“These kinds of challenges can hurt not only the real estate industry but also entire business communities related to it,” says Shalett.

While the Morgan Stanley analysts are forecasting a 40% decline in commercial real estate values, I’d forecast more downside than that. With nearly $3 trillion in commercial mortgages in existence, a 4% increase in interest rates on mortgage renewals on properties that may already be having difficulty cash flowing could be the difference between surviving and foreclosure.

According to the “USA Today” article, the commercial real estate sector is already in trouble. Commercial real estate includes hotels, office buildings, and shopping centers.

Not surprisingly, office space is having the most difficulty. 44% of office building loans were in delinquency in 2021 when measured by volume.

That is simply a huge number.

This will undoubtedly lead to additional problems in the banking sector.

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Stagflation Imminent?

Last week, I discussed the inevitable outcome of government overspending and central bank overprinting.

This outcome will be as ugly as it will be predictable in my view.

Eventually, inflation will give way to an ugly deflationary environment. In the meantime, we will probably see stagflation – rising consumer prices and falling asset prices. Professor Noriel Roubini has a similar take. This from “Markets Insider” (Source: https://markets.businessinsider.com/news/stocks/nouriel-roubini-economy-recession-inflation-debt-market-crash-dr-doom-2023-3):

A “perfect storm” is brewing, and markets this year are going to get hit with a recession, a debt crisis, and out-of-control inflation, the economist Nouriel “Dr. Doom” Roubini said.

Roubini, one of the first economists to call the 2008 recession, has been warning for months of a stagflationary debt crisis, which would combine the worst aspects of ’70s-style stagflation and the ’08 debt crisis.

“I do believe that a stagflationary crisis is going to emerge this year,” Roubini said Thursday in an interview with Australia’s ABC.

With consumer inflation still sticky at 6.4%, Roubini said he estimated that the Federal Reserve would need to lift benchmark rates “well above” 6% for inflation to fall back to its 2% target.

That could spark a severe recession, a stock-market crash, and an explosion in debt defaults, leaving the Fed with no choice but to back off its inflation fight and let prices spiral out of control, he added. The result would be a steep recession, anyway, followed by more debt and inflation problems.

“Now we’re facing the perfect storm: inflation, stagflation, recession, and a potential debt crisis,” Roubini said.

He has remained ultrabearish on the economy, despite the market’s growing hope that the US could skirt a recession this year.

Though more bullish commentators are making the case for a healthy rebound in the S&P 500, which fell 20% last year, Roubini has previously said the benchmark stock index could slide another 30% as investors battled extreme macro conditions.

“They will continue to go down,” he said of stocks, pointing to the recent sell-off as investors priced in higher interest rates from the Fed. “The market is already correcting.”

He urged investors to protect themselves by choosing inflation hedges, such as gold, inflation-indexed bonds, and short-term bonds. Those picks are likely to beat stocks and bonds, he said, which could suffer.

I believe Roubini is correct on a couple counts.

Stocks will likely decline further in my view. One only needs to look at the Buffet Indicator to quickly conclude that despite last year’s decline in stock values, stocks remain heavily overvalued.

And, in order to tame inflation, as I have stated previously, real interest rates need to be positive – interest rates need to be higher than the inflation rate.

There are already signs of stagflation emerging. The real estate market is a good example. Wolf Richter, had this to say on real estate (Source: https://wolfstreet.com/2023/03/04/housing-bust-2-has-begun/):

The housing market in the United States has turned down, and in some big markets very dramatically so. Other markets lag a little behind.

That’s how it went during the last Housing Bust, that I now call Housing Bust #1. During Housing Bust #1, Miami, Phoenix, San Diego, Las Vegas, etc. were a little ahead; other places, like San Francisco were a little behind. In 2007, people in San Francisco thought they would be spared the housing bust they saw unfolding across the country. And then it came to San Francisco with a vengeance.

This time around, San Francisco and Silicon Valley, and the entire San Francisco Bay Area, are at the forefront, along with Boise, Seattle, and some others. In the San Francisco Bay Area, during the first 10 months of this housing bust, Housing Bust #2, the median house price has plunged faster than it did during the first 10 months of Housing Bust #1. That’s what we’re looking at. I’ll get into the details in a moment.

Across the US, home sales have plunged month after month ever since mortgage rates started to rise a year ago. In January, across the US, total home sales plunged by 37% from January last year. Sales plunged in all regions, but they plunged worst in the West, by 42% year-over-year, and the least worst, if I may, in the Midwest, by 33%. This is happening everywhere.

The median price of all types of homes across the US in January fell for the seventh month in a row, down over 13% from the peak in June. Some of the decline is seasonal, and some is not.

This drop whittled down the year-over-year gain to just 1.3%. At this pace, we will see a year-over-year price decline in February or March, which would be the first year-over-year price decline across the US since Housing Bust 1.

Active listings were up by nearly 70% from a year ago, though by historical standards they’re still low. Lots of sellers are sitting on their vacant properties and are holding them off the market, and are putting them on the rental market or are trying to make a go of it as vacation rentals. And they’re all hoping that “this too shall pass.”

“This too shall pass” – that’s the mortgage rates. The average 30-year fixed mortgage rate went over 7% late last year, then in January, it dropped, went as low as 6%, and the entire industry was breathing a sigh of relief. This was based on fervent hopes that inflation would just vanish, and that the Federal Reserve would cut interest rates soon, and be done with this whole nightmare.

But in early February came the realization that inflation wasn’t just going away. Friday’s inflation data confirmed that inflation is reaccelerating, that it already started the process of reacceleration in December. Some goods prices are down, but inflation in services spiked to a four-decade high. Services is nearly two-thirds of what consumers spend their money on. Inflation is very difficult to dislodge from services. The Federal Reserve is going to have its hands full dealing with this – meaning higher rates for longer.

And mortgage rates jumped again and on Friday were back to about 6.9%, according to the daily measure by Mortgage News Daily. Just a hair below the magic 7%.

And potential sellers are still sitting on their vacant properties, thinking: and this too shall pass.

So how many vacant homes are there? The Census Bureau tracks this. In the fourth quarter last year, there were nearly 15 million vacant housing units – so single-family houses, condos, and rental apartments. That’s over 10% of the total housing stock.

In 2022, the number of total housing units increased by over 1.3 million. If each housing unit is occupied on average by 2.5 people, that’s housing for 3.3 million more people than in the prior year. The US population hasn’t grown nearly that fast in 2022.

Ok, so now here are nearly 15 million vacant housing units. Of them, 11 million were vacant year-round. Some of the 11 million were being remodeled to be rented out, and others were for sale, and that’s the inventory we actually see, and there are other reasons why homes were vacant.

But 6.6 million homes were held off the market, for a variety of reasons, such as that the owners don’t want to sell the property at the moment.

If just 10% of these 6.6 million homes that are held off the market show up on the market, it would double the total number of active listings. If 20% of these homes show up on the market, it would trigger an enormous glut.

This is the shadow inventory. It can emerge at any time. And during Housing Bust 1, this shadow inventory that suddenly emerged created the biggest housing glut ever.

As I noted last week, history teaches us that excessive debt levels lead to deflation.

This time will ultimately be no different.

Deflation will at some point, become the prevalent economic force. In the meantime, expect stagflation.

That will be more bad news for stocks and real estate as well as consumer prices.

The best advice that I can offer is to have some of your assets that will be protected from a prolonged decline in stocks and real estate and other assets that will perform well in an inflationary environment.

Inflation Update and Recession Realities

When inflation first became a topic of conversation, I stated my view that unless we saw real positive, net interest rates, inflation would not be controlled.

If you are a new reader, that simply means that the interest rates have to be higher than the inflation rate. If the inflation rate is higher than credited interest rates, the incentive to save disappears and inflation is fed not tamed.

So far, it seems, that opinion is spot on. Despite increasing interest rates, inflation is now officially hotter than at any time in the last 40 years. This from Wolf Richter (Source: https://wolfstreet.com/2022/10/13/services-now-drive-inflation-worst-in-40-years-services-cpi-core-cpi-show-inflation-is-entrenched-in-broad-economy-some-goods-prices-fall-gasoline-plunges/) on the topic:

Nearly two-thirds of consumer spending goes to services. And they’re now the driver of inflation. The CPI for services spiked in September for the 13th month in a row, and by the most since 1982, and it accelerated month-to-month. Housing costs spiked, but also all kinds of other services, such as health insurance (+2.1% month-to-month and +28% year-over-year).

“Core CPI,” which excludes food and energy, was the worst since 1982. Food prices spiked again, but spiked slightly less than the prior month which had been the worst since 1979. But some relief came from a decline in prices of used vehicles and consumer electronics, and from gasoline, which plunged.

Overall inflation as measured by the year-over-year Consumer Price Index (CPI-U), released today by the Bureau of Labor Statistics, jumped by 0.4% in September from August, a sharp acceleration from the prior two months, and by 8.2% year-over-year. What held down overall CPI was the plunge in gasoline prices and the drop in used vehicle prices.

The Social Security COLA for 2023 was also determined with today’s inflation data. It is based on the average of the year-over-year increases in the Consumer Price Index for All Urban Wage Earners and Clerical Workers (CPI-W) in July, August, and September. For 2023, the COLA will be 8.7%, the highest since 1981, but in 2021 and 2022, the COLAs got crushed by raging inflation.

Services Inflation spiked for the 13th month.

The CPI for services spiked by 0.7% in September from August, a sharp acceleration from the prior two months; and by 7.4% year-over-year, the worst increase since August 1982. This is where nearly two-thirds of the money goes that consumer spend, and consumers are getting whacked.

I split services into two groups: categories where prices rose year-over-year and categories where prices fell year-over-year.

Service categories where CPI rose year-to-year.

In some categories, the CPI declined on a month-to-month basis but was still up year-over-year. Note the massive month-to-month increases in insurance, medical services, motor vehicle maintenance, and delivery services.

With inflation continuing to rage, it’s not surprising that spending on some items, especially discretionary items is down. Admission to sporting events is one good example.

It’s also not surprising that consumer spending on retail, services and other general merchandise was down in September as consumers are using more of their income to meet basic living expenses. This from CNBC (Source: https://www.cnbc.com/2022/10/14/retail-sales-september-2022.html):

Consumer spending was flat in September as prices moved sharply higher and the Federal Reserve implemented higher interest rates to slow the economy, according to government figures released Thursday.

Retail and food services sales were little changed for the month after rising 0.4% in August, according to the advance estimate from the Commerce Department. That was below the Dow Jones estimate for a 0.3% gain. Excluding autos, sales rose 0.1%, against an estimate for no change.

Considering that the retail sales numbers are not adjusted for inflation, the report shows that real spending across the range of sectors the report covers retreated for the month.

A Bureau of Labor Statistics report Thursday indicated that consumer prices rose 0.4% including all goods and services, and 0.6% when excluding food and energy.

Miscellaneous store retailers saw a decline of 2.5% for the month, while gasoline stations were off 1.4% as energy prices declined.

A slew of other sectors also posted drops, including sporting goods, hobby, books and music stores as well as furniture and home furnishing stores, both of which posted a -0.7% drop, while electronics and appliances were off 0.8% and motor vehicle and parts dealers fell 0.4%.

I continue to be of the opinion that the Federal Reserve will eventually choose to reverse course and once again pursue easy money policies. While that may fuel inflation in the near-term, ultimately deflation due to massively excessive debt levels will be the primary economic trend in my view.

That’s why I also believe its important to use the Revenue Sourcing™ planning process to manage your nest egg and plan your retirement income and allocation strategies.

Meanwhile, as we approach election day, there is another strong economic headwind being created by the Fed’s tightening policies. Interest rates on a 30-Year mortgage now exceed 7%, up from 2.75% at the beginning of the year. This fact reported by CNBC (Source: https://www.cnbc.com/video/2022/10/12/higher-rates-are-hitting-homebuyers-hard-30-year-fixed-rate-mortgage-over-7percent.html).

This will be a huge obstacle for the artificial economy created by Fed policy in the first place.

On a $400,000 mortgage, the interest costs are now about $17,000 per year more than they were in January.

That’s an increase in monthly interest cost of more than $1400!

That is taking many buyers out of the market and quickly taking the wind out of the sails of a once red-hot real estate market. If you have plans to buy real estate, there may be much better buys down the road as higher interest rates and an economy in recession are rapidly slowing the real estate market.

Is Deflation Here?

I have long stated my opinion that, at some future point, the Federal Reserve will reverse course and begin to pursue loose money policies again reducing interest rates and once again engage in quantitative easing.

I have discussed the reasons that I believe this will happen in detail in past issues of “Portfolio Watch” so, in the interest of brevity, I won’t recite the reasons in detail again but suffice it to say that debt levels are too high to allow for interest rates to be increased to a level that would subdue inflation.

Ultimately, the economic path on which we find ourselves leads to a predictable destination. I have often also quoted Thomas Jefferson who told us that if we put private bankers in charge of monetary policy they would destroy the economy first by inflation and then by deflation.

Inflation, succinctly defined, is an expansion of the currency supply.

Deflation, accurately described, is a contraction of the currency supply.

Price increases are a symptom of inflation while a decline in the price of assets is a symptom of deflation.

At this point in time, we have seen inflation in consumer prices and we’ve seen evidence of deflation as stock prices have collapsed this year.

Now, however, there are more signs of deflation becoming more apparent.

Used car prices are beginning to decline perhaps signaling that deflation is beginning to emerge. This from “Zero Hedge” (Source: https://www.zerohedge.com/markets/used-car-prices-record-first-annual-drop-two-years-luxury-car-prices-take-beating):

Used car prices appear to moderate as the latest report from auction giant Manheim found that wholesale used-vehicle prices recorded the first annual drop in more than two years.

Manheim’s wholesale used-vehicle prices fell 3% in September versus the prior month. The index declined to 204.5 and is down .1% from a year ago, the first annual drop since May 2020.

Prices are still elevated but down about 13.5% from the all-time high of 236 in January.

In April, we asked the question: “Are Used Car Prices About To Peak For Real This Time?” Followed by a note one month later titled “Used Car Prices Are Crashing At A Near Record Pace.” And by August, we found that “Used-Car Market Cools As Prices Plunge To One Year Low.”

Unpacking today’s report, compact cars had the most significant yearly increase last month at 5.9%, followed by vans and pickups, both of which increased by 0.8%. Increasing demand for smaller, more fuel-efficient cars could be due to consumer shifts away from gas-guzzling SUVs. Meanwhile, midsize car prices were marginally lower, but what caught our eye was the significant decline in luxury vehicles, down 4.8%.

Over the past couple of weeks, I’ve noted that real estate is beginning to show signs of weakness. This week, “The Epoch Times” reported that mortgage applications are at 25-year lows. That’s a remarkable statistic when you consider it. (Source: https://www.theepochtimes.com/mortgage-application-pace-plunges-to-25-year-low-as-housing-recession-deepens_4776637.html)

The pace of mortgage applications has fallen to a multi-decade low amid high housing interest rates, according to the latest data from the Mortgage Bankers Association (MBA).

The Market Composite Index, a measure of mortgage loan application volume, declined by 14.2 percent on a seasonally adjusted basis for the week ended Sept. 30, 2022, compared to a year earlier. The Refinance Index fell 18 percent from the previous week, while the Purchase Index registered a decrease of 13 percent.

Joel Kan, MBA’s associate vice president of economic and industry forecasting, pointed out that overall mortgage application activity dropped to its “slowest pace” since 1997, according to a press release on Oct. 5.

For the week ended Sept. 28, 2022, a 30-year fixed-rate mortgage was 6.70 percent, which is more than double what it was a year ago, at 3.01 percent.

“The current [mortgage] rate has more than doubled over the past year and has increased 130 basis points in the past seven weeks alone,” Kan said.

“The steep increase in rates continued to halt refinance activity, and is also impacting purchase applications, which have fallen 37 percent behind last year’s pace.”

Mortgage numbers were also affected by Hurricane Ian hitting Florida last week, as it triggered widespread evacuations and closures, he noted. Mortgage applications in Florida alone fell by 31 percent.

Construction spending in the country, an indicator of total spending on all types of construction, had fallen for the second consecutive month in August, according to a U.S. Census Bureau report, signaling that the housing market is slipping further into a recession.

In July, the National Association of Realtors (NAR) had warned that the United States was in a “housing recession,” as existing home sales fell by 5.9 percent.

I expect that deflationary forces will soon take over and the fact that the economy is in a recession is a fact that I believe will soon become widely accepted. I also expect the recession to be deeper than anything we’ve experienced in recent memory.

Keith McCullough, who is CEO and founder of Hedgeye Risk Management recently did an interview with “Market Watch” (Source: https://www.marketwatch.com/story/this-stock-market-strategist-says-the-coming-recession-could-be-the-biggest-ever-i-recommend-prayer-11664819562) in which he makes a similar forecast.

Here are some excerpts from the interview:

Recession today is what “transitory” inflation was a year ago. The Fed is as wrong on recession risk as they were on inflation.

I’m about as bearish as I’ve been since 2008. Instead of the economy having a soft landing, I think the landing is going to be hard. The recessionary economic data keeps getting worse, not just in the U.S. but in Europe as well.

Free money forever created behavioral problems and a behavioral bubble for the markets and investors. You believe you’ll have unlimited access to easy money and your behavior, whether you’re building profitless growth companies through storytelling or cryptocurrencies that also are just stories. You’re coming from the mother of all behavioral bubbles that now will be addressed with tighter money. When you’re printing money and the economy is accelerating to the fastest growth rate ever, you’re going to have the mother of all bubbles. Now, GDP is going to slow to zero, and you get the opposite.

Unfortunately, I believe Mr. McCullough is spot on.

The Beginning of the End for Real Estate?

In the September issue of “The You May Not Know Report”, I discuss my view that the housing market is beginning to slow and is on the verge of a decline much like the one we witnessed at the time of the Great Financial Crisis.

There are many reasons that I come to this conclusion which I discuss in detail in the September newsletter.

Bottom line, it’s my view that if you have plans to sell your house and you can sell it now at a good price, you should think seriously about it. If you are planning a purchase, you might be wise to wait a bit.

This from the September newsletter:

Another month, another plunge in housing.

Hot on the heels of the latest catastrophic homebuilder sentiment print and plunging single-family starts and permits, analysts expected existing home sales to accelerate their recent decline with a 4.9% MoM drop in July They were right in direction but severely wrong in magnitude as existing home sales tumbled 5.9% MoM in June.

That is the 6th straight month of existing home sales declines – the longest stretch since 2013 – pulling home sales down a stunning 20.2% YoY. From the NAR:

“The ongoing sales decline reflects the impact of the mortgage rate peak of 6% in early June,” said NAR Chief Economist Lawrence Yun.

“Home sales may soon stabilize since mortgage rates have fallen to near 5%, thereby giving an additional boost of purchasing power to home buyers.”

The collapsing housing market means the SAAR is now below the full-year pace of 2012 – one decade ago.

SAAR is an acronym meaning Seasonally Annually Adjusted Rate.

Despite the economist from the National Association of Realtors stating that home sales may soon stabilize, I don’t expect it.

Private lenders in the mortgage space are starting to go bust due to rapidly declining demand for mortgages. This from “Zero Hedge” (Source: https://www.zerohedge.com/markets/private-mortgage-lender-bust-begins-loan-applications-crash):

The US mortgage industry could be on the cusp of a bust cycle as the Federal Reserve’s most aggressive interest rate hikes in decades have sent mortgage loan application volume crashing.

The 30-year fixed mortgage rate jumped from 3.27% at the start of the year to as high as 6% in mid-June, sparking what we’ve been warning readers about is an affordability crisis where demand for homes has evaporated.

Plunging demand for homes can be seen in the pace of mortgage application volumes, falling to levels not seen since the lows of the Dot-Com bubble implosion of 2000.

This means that the rate shock has abruptly curbed the pipeline of new loans and refinancings for mortgage companies — where the poorly capitalized ones will fail first.

From the same article:

The epicenter of the implosion will be independent lenders, such as First Guaranty, who recently filed for bankruptcy after it held onto loans it made that quickly dropped in value earlier this year while trying to package them up to sell to investors.

Court papers revealed lending volume dropped when mortgage rates spiked earlier this year. The company said it could no longer bundle new loans as its pipeline dried up. First Guaranty owes Flagstar Bank and Customers Bank approximately $418 million. It also cut hundreds of employees.

Another independent lender, LoanDepot, laid off 4,800 jobs in July as its pipeline of mortgage volume dried up.

I expect a repeat of the housing crash that occurred at the time of the Great Financial Crisis at some level.

The evidence suggests the onset of that collapse may be getting close.