Is the United States Headed for Another Housing Crash?

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By Jacob Maslow

couple looking at house to buyBack in the great financial crash of 2008, a raft of reforms hit the mortgage lending industry. These were very much welcomed reforms. They cracked down on whom banks can lend to, as well as the amount of down payment a new home-buyer would have to pony up. The whole point of these reforms was to strengthen the lending system, to ensure that the industry would survive.

Fast forward by seven years, it appears that we are right back where we started. The government has issued new policies that included lowering down payment requirements, decreasing mortgage insurance premiums, and generally loosening lending standards. The whole public policy being espoused by the Obama administration is to get first-time home-buyers to get off the fence and buy a home. While this is an admirable goal, I am not so hot on the methods being used. If you look at the new policies, they are precisely the same policies that got us into the first housing crash.

The explosion in subprime loans that sank the U.S. housing market was due to the rise of Ninja loans. Ninja loans are loans that you can get if you had no income, no job, and no assets. Such loans were being cranked out by all sorts of mortgage lenders because they were being backed up by the Federal government. While it is true that an increase in home ownership would create multiplier effects throughout the rest of the economy, I am not so sure if the risk is worth it. The last thing the U.S. financial system needs at this time is another mortgage-related crash.

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