Tuesday, May 12, 2009

Housing BoomBusts

Bet you didn't know......

...in 1922 Hoover launched the Own Your Own Home campaign,...[changed national bank lending requirements, and] from mid-1927 to mid-1929, national banks’ mortgage lending increased 45 percent...

But: as homeownership grew, so did the rate of foreclosures. From just 2 percent of commercial bank mortgages in 1922, they rose to 9 percent in 1926 and to 11 percent in 1927

Then followed the Crash of 1929, "runs" on banks, and the liquidity crisis which triggered the Depression. Strike One.


...the feds responded to the crisis with the Home Owners’ Loan Corporation (HOLC), a New Deal bailout program that made government an even bigger player in the housing market. Congress designed the HOLC to buy up troubled mortgages from lenders and then let homeowners refinance the loans with the government on more affordable terms...Despite the more favorable terms that the HOLC offered, however, about one-fifth of the new mortgages defaulted,...Ultimately, the HOLC did file more than 200,000 foreclosure actions. And its purchase of bad loans never revived mortgage lending, which stayed flat for the rest of the decade

That was Strike Two.

Intent on a postwar project of boosting homeownership, the federal government had passed the GI Bill in 1944, extending a range of benefits to returning veterans—including government-subsidized mortgages. With the feds footing a big part of the bill, the nation’s long-moribund mortgage market came alive, more than doubling in volume between 1945 and 1950

Under pressure to keep meeting housing demand, the government began loosening its mortgage-lending standards—cutting the size of required down payments, approving loans with higher ratios of payments to income, and extending the terms of mortgages.

By attracting riskier home buyers, these moves provoked a surge in foreclosures on government-backed mortgages. The failure rate on FHA-insured loans spiked fivefold from 1950 to 1960,

Strike Three...

And, of course, we had the Clinton/Bush/Congressional push for more home ownership of the recent period, ending in ANOTHER bust.

Strike Four.

HT: Christian via FoxPolitics

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