Lest anyone mistakenly believe that I am a lone voice questioning why the ruling/governing class in America seem to have already forgotten what led to the financial and housing crisis that sparked this nation’s longest recession, Stephen Moore, the Distinguished Visiting Fellow, Project for Economic Growth at the Heritage Foundation, and former writer for the Wall Street Journal, penned a recent article for FoxNews.com, titled, “Why is Washington re-inflating the financial bubble.” And I quote, “Bubble, bubble, toil and trouble. That might well be the new theme for the U.S. economy. Washington – the White House, Congress, housing agencies, and the Fed – have learned nothing from the housing bubble of 2007-08.” Moore adroitly explains (as I have many times on HousingWire), that although there is blame enough to spread across Wall Street, and to many involved in the mortgage and real estate industries, as well as to consumers themselves, the true enabler was our government. Through easy money, housing policies that pushed people into low down payment loans that many could not or would not ever repay, and a tsunami of debt, the stage was set. Evidence abounds that the bubble is now being re-inflated by these very same culprits: If those aren’t troubling signs enough, other reports, including one from RealtyTrac, recently indicated that bank repossessions have spiked 66% year-over-year in Q3 of this year. This is the greatest annual rise ever recorded by RealtyTrac. The foreclosure sales and real estate analytics company stated that more than 123,000 single-family homes went back to the lenders in just three months. While it is true that in states such as Florida, Massachusetts, New York and New Jersey, a virtual flood of deferred foreclosures from the previous housing crisis are finally cascading over legal and legislative dams in these judicial foreclosure states, other states, such as Nevada, are seeing dramatic increases in mortgage delinquencies. And, a dramatic rise in foreclosure activity will impact values in certain markets. A very large percentage of the homes being foreclosed upon have deferred maintenance, which means they will be sold at discounted prices. The added inventory of homes will in itself drive down or slow rising home prices, but the discounted sales will have an even greater negative impact. Additionally, in an article in HousingWire authored by Brena Swanson on Oct. 19, “MBA predicts mortgage lending will shrink next year,” there is both negative and positive news for those involved in real estate. According to Swanson, the Mortgage Bankers Association said at a press conference at its annual meeting being held in San Diego that it expects a decrease in refinance mortgage originations. But, it is also predicting an increase in purchase mortgage originations. Swanson reported that Michael Fratantoni, chief economist and senior vice president of research and industry technology with the MBA, attributed the predicted increase in purchase mortgage originations to a mixture of factors, including growing demand in households for owning a home rather than renting, and mortgage finance options. To put an exclamation point on Moore’s observations, consider that Fannie Mae and Freddie Mac are much more bullish on loan originations for 2016. Why wouldn’t they be, since they are promoting 3% down payment loans? This will no doubt increase loan originations, but just as surely, it will increase delinquency risks. As a result of all this, there is a looming downward spiral predicted here. That said, savvy real estate professionals, investors and potential home buyers recognize potential opportunity when they see it.
Stephen Moore has written an article titled, “Why is Washington re-inflating the financial bubble?” which states that Washington has learnt nothing from the housing bubble of 2007-2008. Moore writes that although Wall Street was partly to blame for the housing bubble, amongst others, ultimately the fault must lie with the American Government for allowing housing policies that pushed people into low down payments loans which many could not repay. Observers are worried that history is going to repeat itself since Fannie Mae and Freddie Mac offer 3% down payment loans, Janet Yellen offers zero-interest loans, and the Federal Housing Administration loans have become the "new sub-prime" loans. In addition to the loans on offer, another worrying factor is RealtyTrac's report that bank repossessions have risen to 66% YoY in Q3 2015.