The Birth Of The Next Housing Crisis – Day One?

Contagion

I’m not sure that we’ll have another housing bubble burst soon, or even in my lifetime.  But I’m sure that if we do, the genesis of that bubble will begin like this:

 The Obama administration is engaged in a broad push to make more home loans available to people with weaker credit, an effort that officials say will help power the economic recovery but that skeptics say could open the door to the risky lending that caused the housing crash in the first place.

President Obama’s economic advisers and outside experts say the nation’s much-celebrated housing rebound is leaving too many people behind, including young people looking to buy their first homes and individuals with credit records weakened by the recession.

In response, administration officials say they are working to get banks to lend to a wider range of borrowers by taking advantage of taxpayer-backed programs — including those offered by the Federal Housing Administration — that insure home loans against default.

The best of intentions, to be sure.  But the beginnings of a potential housing contagion.

And let’s not forget the associated racist dog whistle that accompanies these efforts:

“If you were going to tell people in low-income and moderate-income communities and communities of color there was a housing recovery, they would look at you as if you had two heads,” said John Taylor, president of the National Community Reinvestment Coalition, a nonprofit housing organization. “It is very difficult for people of low and moderate incomes to refinance or buy homes.”

And like past bad behavior, this time around the language surrounding the policy sounds good:

“I think the ability of newly formed households, which are more likely to have lower incomes or weaker credit scores, to access the mortgage market will make a big difference in the shape of the recovery,” Duke said last month. “Economic improvement will cause household formation to increase, but if credit is hard to get, these will be rental rather than owner-occupied households.”

It’s a free stimulus!

However, to be fair, if this is Day One, then Day Zero occurred a long time ago:

Deciding which borrowers get loans might seem like something that should be left up to the private market. But since the financial crisis in 2008, the government has shaped most of the housing market, insuring between 80 percent and 90 percent of all new loans, according to the industry publication Inside Mortgage Finance. It has done so primarily through the Federal Housing Administration, which is part of the executive branch, and taxpayer-backed mortgage giants Fannie Mae and Freddie Mac, run by an independent regulator.

It’s the same song that got us into this mess, this is just a new stanza.

 

 

7 responses to “The Birth Of The Next Housing Crisis – Day One?

  1. It is much harder to get credit and a lot of people who should qualify are having problems. But remember, the housing bubble was caused by Wall Street speculation, and mortgage brokers who threw away standards since the big banks were buying ANY mortgage in order to turn them into AAA bonds and sell them. It was lack of regulation of derivative trade that caused the crisis, and not too many unqualified buyers. Indeed, qualified buyers were the bigger problem – they were taking out mortgages on speculation at inflated prices, far greater than they could afford. Very little about the last bubble was the result of loans given to low income buyers. In fact, the big banks circumvented Fannie and Freddie because their standards were too stringent.

    • It is much harder to get credit and a lot of people who should qualify are having problems.

      People who make money lending money are good at determining who is gonna repay that money. Let’em do it their way.

      But remember, the housing bubble was caused by Wall Street speculation, and mortgage brokers who threw away standards since the big banks were buying ANY mortgage in order to turn them into AAA bonds and sell them. It was lack of regulation of derivative trade that caused the crisis, and not too many unqualified buyers.

      Nope.

      The bubble was caused by the government encouraging home ownership among low income individuals.

      Noble intentions to be sure. However, the road to hell…..

  2. But the people lending money aren’t usually the ones undertaking the risk any more. That’s why we had the housing bubble, risk was factored out of the equation. Pino, you are dead wrong about saying the housing bubble was caused by government encouraging home ownership. That’s not a defensible position, it’s not even close to the truth! How can you make that claim, where did you get that information? I mean, I’ve really looked into this, I explained to you many times how the big banks thirst for mortgages destroyed lending standards and led to the bubble. I’ve given you lists of books that go into this. Yet you keep repeating the same false claim, and never once back it up. I’m a bit frustrated. Do you just believe it because it fits with your ideological view of how you think reality should be – government causing all the problems? I mean, I don’t really comprehend how you can hold that view! I’m flabbergassed!

    • But the people lending money aren’t usually the ones undertaking the risk any more.

      This is especially true now; the government is assuming the risk – see above quote.

      I’ve given you lists of books that go into this.

      I’ve been reading “All The Devils Are Here”. I do not think that book makes your case for private responsibility. In fact, I think it makes the case for government responsibility.

      Yet you keep repeating the same false claim

      You have yet to show me data that would suggest it wasn’t government.

  3. Pingback: Housing Bubble – Government Creation? | Tarheel Red

  4. Yes, I have. I’ve explained about how the big banks turned mortgages into bonds, bought any mortgage that they could, causing mortgage brokers to totally throw out lending standards. Private mortgage companies went bananas making massive amounts of money on mortgages they often knew people couldn’t afford (and they’d add lots of fees). The big banks sold the bonds as AAA, and it permeated the system. That high demand from Wall Street banks, and the toxic assetts that the bonds created, caused the crisis. Most of the borrowers who over did it were NOT poor, they were people speculating or buying homes beyond their means because the lenders said they could re-fi once the value went up to a better rate. If it were just subprime or poor borrowers who were the problem, it would not have created a bubble, there’s not that many of those.

    • I’ve explained about how the big banks turned mortgages into bonds, bought any mortgage that they could, causing mortgage brokers to totally throw out lending standards.

      To the extent that is true, it was as a result of government forcing banks to hit targets.

      That high demand from Wall Street banks, and the toxic assetts that the bonds created, caused the crisis.

      I agree that rating agencies failed in adequately rating the vehicles.

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