Tuesday, March 31, 2009

The Housing Boom and Bust

Here's another prophetic article from 2007 on the current housing crisis that helped to collapse the global economy.

The Housing Boom and Bust

NPR.org, April 30, 2007 · Experts cite a number of conditions that have helped fuel the housing bubble of the past several years and are also leading to its bursting. Here we look at some of the top contributors.

Mortgage Lenders

Lenders sold and refinanced homes at historically low lending rates several years ago, pushing up prices. As interest rates rose, these mortgage lenders targeted new customers and used nontraditional products in an attempt to maintain sales. They diversified into subprime lending, loosening lending standards to reach new home buyers. Lenders also expanded the use of exotic loan products – such as interest-only mortgages - across the spectrum of homeowners. Many products used artificially low payments at the start. This encouraged borrowers to buy more expensive homes which further boosted housing prices.

Guy Celela, publisher of Inside Mortgage Finance, offers a defense of lenders. "Delinquency rates were low, home prices were appreciating and the economy was strong." But, he says, the industry participated in "loose, if not sloppy, underwriting." Individuals with extremely poor credit histories received loans. Also consumers received loans that would become unaffordable once the teaser expired or interest rates rose.......


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