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RE: Subprime lending not main trigger of real estate bubble


RE: Subprime lending not main trigger of real estate bubble
by Decius at 4:50 pm EDT, Aug 1, 2008

Mike the Usurper wrote:

Decius wrote:

The researchers found that rising home prices up to 2003 could be explained by economic fundamentals, such as low unemployment rates, expanding household incomes and population growth. These factors fueled housing demand and, in turn, increased U.S. home prices. During this time, Fannie Mae and Freddie Mac actively issued and purchased conventional, conforming mortgage-backed securities.

But in 2003, political, regulatory and economic factors – including accounting irregularities that led to their senior officers’ resignations and the capping of their retained loan portfolios – forced the two entities to significantly slow their lending volume. Private funding in the form of asset-backed securities and residential mortgage-backed securities replaced conventional, conforming mortgage-backed securities as the prevalent source of mortgage capital.

The new credit environment allowed looser underwriting standards and increased tolerance for riskier, high-yield loan products. Such products included adjustable-rate mortgages with low initial “teaser” rates, Alt-A loans that did not require income verification and nonowner-occupied investor products. This borrowing climate provided previously marginal borrowers with additional access to credit.

Well This is sort of right. The sub-prime lending didn't cause it, it may have contributed a bit, but home prices were already on a good upswing before it started. The sub-prime problems ARE the trigger for the popping of the bubble though, so the total relevance of the article is somewhat questionable.

Frankly, what I found most interesting is the assertion that home prices were reasonable in 2003. Many of the bears say that the bubble has been going on far longer than that. It provides a helpful gauge for where prices ought to be today.

RE: Subprime lending not main trigger of real estate bubble

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