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March 4, 2007

Today's Housing Bubble Post - Subprime Loans "Coming Home to Roost"

-- by Dave Johnson

At the Drum Major Institute's blog: Sub-Prime Mortgages Come Home to Roost,

"During the housing boom that ended in 2005," the Times reported, "money was poured with abandon into exotic home loans that let people buy homes with little down or without verifying their incomes. Now, lenders, financiers and buyers of mortgages are pulling back...The move comes as default rates are rising, smaller lenders are starting to fail and investors are shunning bonds backed by mortgages."

Duh! Where have they been? For more years now advocates have been denouncing sub-prime loans and "exotic" mortgages - adjustable rate loans, "no doc" loans, interest only loans, etc. - as often abusive and predatory, and a leading contributor to mortgage defaults and financial instability among working and middle class people. Meanwhile sub-prime lenders have been losing profits, downsizing and going out of business because their loan porfolios are crumbling under the poor or non existent underwriting criteria.

[. . .] The question remains: When will law makers and regulators finally step in and clean up the sub-prime market?

Also take a look at Homeownership: The Fast Path to Poverty?,
This single-minded promotion of homeownership is now proving to have disastrous consequences for many moderate income families that bought homes at the peak of the bubble. Many of these families will end up losing their homes and whatever savings they had used to buy a home. Their credit record may be permanently damaged and possibly their aspirations as well.

Posted by Dave Johnson at March 4, 2007 6:51 PM

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