Controversy Brewing in Housing Market

[May 25, 2007.]

 

The National Association of Realtors has lowered its price growth forecast to 1.2 percent as a result of perceived subprime troubles. Meanwhile, an economist for the group notes that California has a high subprime share while North and South Dakota have a particularly low one.

The economist maintains that a number of lenders offered mortgages to troubled borrowers during the housing boom. The apparent reason for the practice? Greed.

Meanwhile, a panel at a conference sponsored by the National Association of Mortgage Brokers is making recommendations for combating trigger lists. These lists are based on consumer information which has been sold by credit bureaus after fielding an inquiry from a lender. Lead generator firms then peddle the lists to mortgage companies.

On the subprime front, Lehman Brothers says that foreclosure problems may have been overblown. According to a report issued by the economists, subprime lending represents less than one-fourth of all new loans. That means that scaling back subprime lending will decrease the total supply of credit only slightly.

In other housing news, Residential Capital LLC has announced it will significantly cut nonprime origination volume by means of stricter underwriting criteria and price alterations. In addition, parent company GMAC Financial Services reported in a filing with the Securities and Exchange Commission that the company will launch structural cost reduction since business appears to be appropriate for a decreased industry volume.

Meanwhile, the rise in foreclosures is actually good news for some investors. These are individuals who are capitalizing on the crisis by viewing the foreclosures as opportunities for investment. As one savvy investor put it in a report published by Reuters, "A lot of people's misery is other people's gains."

For those with money to spend in an increasingly tight economy, it's possible to engage in some bargain real estate shopping. With housing prices high in much of the country, a foreclosed property may represent an inexpensive way for an investor to expand his or her real estate holdings.

Julie Ann Amos
May 25th 2007
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