It’s time for an update on the real estate bubble, which I have been watching since 2003. About a year ago, I laid out a timeline for the real estate boom. Knowing real estate happens in 16-year cycles, I juxtaposed the last boom/bust cycle in the early 90’s onto this cycle. Here’s what I came up with:
1990 (2007): Prices take a serious plunge. One article claims that housing booms are a bad thing and we should hope prices stay low. Increasing mortgage rates are blamed for the bust. The word “recession” is mentioned. Gloom and doom.
That’s next year. How many times do you think you will hear the words “looming recession” next year? More than you want to, that’s for sure…
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Filed under Housing Market, Mortgage News, Economy, Real Estate, Secondary Mortgage Market, Fannie Mae, Market Forecast, Mortgage Blog, Housing Crash, subprime meltdown, Lending guidelines by Godfather
The shortcomings of Fannie Mae have been overlooked on the basis that Fannie plays a critical role in driving the housing sector, and thus the American economy. As Fannie goes, so goes the nation. Fannie means housing, and accordingly, Fannie is the conduit that takes one from "inequitable ownership" to the American Dream. In a nation where equality is everything, and where advantage need not be earned, but only redistributed, how can anything be more virtuous?
Fannie Mae (FNMA or Federal National Mortgage Association), a government-sponsored enterprise (GSE), finances one of every five home loans in the United States. In 1938 this GSE was founded by the federal government with a mission to increase home ownership across the United States. It is subject to congressional oversight via the Office of Federal Housing Enterprise Oversight (OFHEO). Fannie Mae stock (FNM) is actively traded on the New York Stock Exchange and is part of the Standard & Poor’s 500 Composite Stock Price Index.
Fannie Mae may be one of the most ill-fated welfare creations, ever, on the part of the United States government. In the beginning, Fannie Mae’s impact was negligible, however, from the outset there were plans to swell Fannie’s waistline by expanding her purchasing authority. At about the time the American soldiers were coming home from WWII, Fannie was enabled to purchase loans guaranteed by the Veterans Administration, in addition to the Federal Housing Administration-insured mortgages it was already purchasing. This creation and expansion of a secondary market for mortgages was a vital boost to the supply of lendable money in the United States.
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Posted by Tom Davie
Why many borrowers who qualified for prime-rate loans wound up with subprimes instead.
Les Christie, CNNMoney.com staff writer
May 30 2007
NEW YORK (CNNMoney.com) — Imagine you’re a homeowner, and you discover that instead of the expensive subprime mortgage loan you signed on for, you actually qualified for a prime mortgage with much lower interest rates.
Subprime loans are usually designed for borrowers with damaged or sketchy credit histories. Lenders charge higher rates to these customers to offset the extra risks they take on. Prime loans are usually granted to borrowers with credit scores of 650 or higher.
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Despite regulators’ warnings that some popular types of mortgages are risky, lenders are still making them, and mortgage insurance companies have begun pleading with federal banking agencies to act quickly to restrict them.
The loans under scrutiny include interest-only mortgages and "option" mortgages, in which borrowers decide each month how much to repay. Because monthly payments are lower than with traditional fixed-rate mortgages, borrowers can buy more expensive houses. In the past five years, millions of Americans have bought or refinanced homes using these loans. The risk comes because eventually these loans "reset," meaning the payment is adjusted upward — sometimes as much as doubling — to repay the full interest and principal owed.
Area Housing Outlook: 2006
The Post’s annual Housing Outlook provides in-depth analysis of area housing trends, with additional online-only features.
Washington Post
