So, I have been hearing a lot of talk lately about the housing market hitting bottom and we are on the rebound.
Well, I am not as optimistic and let me share with you why.
First, you need to understand that I am a true believer that the Community Re-Investment Act” is what caused the housing bubble, which ultimately led to the fall of the sub-prime market but, that is another blog of another time.
So, back in 1999, President Clinton signed into law the Gramm-Leach-biley Act aka the Financial Modernization Act, that President Clinton said, “establishes the principles that, as we expand the powers of banks, we will expand the reach of the [Community Reinvestment] Act". As we now know…was an under statement.
This Act ultimately made it easier for banks to provide bad debt to un worthy consumers. In other words, this direct action on President Clinton’s part, as well as the sitting Congress at that time made NINJA (No Income, No Job, Accepted) loans and Sub-Prime lending the way most banks did business for the next 5 years.
2005 is when we started to see the first signs of the housing bubble burst and many argue that it was only 5 years of bad lending so, by 2010, we should be out of the woods….well, not so fast.
It wasn’t till 2007 with the regulatory changes by the Office of Thrift Supervision that changed the Community Re-Investment Act’s home purchase loan reviews that actually stopped the Sub-Prime, Bad Debt and NINJA loans.
So, in reality, the bad lending was from 1999 – 2007, or 8 years. In other words, here in 2009, we still have at least 5-6 years before all these loans are completely worked out of the system.
Not to mention home prices / value have dropped so significantly that HELOCS and A(+) debt is being called in, we have a credit crunch so no loans are being made, our bond market is tanking due to increase governmental debt, and interest rates are on the rise due to inflation.
We still got a ways to go folks…..3-5 years, at least.