Home -> Law Blog Directory -> Law Students Blogs -> Urban Law Journal

OR PHONE (866) 635-1838 for Bankruptcy Help, (866) 635-6190 for Divorce,
(866) 635-2689 for Personal Injury or (866) 635-9402 for Criminal Defense

Find a Local Lawyer

Bankruptcy (866) 635-1838
Divorce (866) 635-6190
Personal Injury (866) 635-2689
Criminal Defense (866) 635-9402

Law Students

: Urban Law Journal

The Housing Bubble -- Part 2 of 3

By 3L at Seton Hall University School of Law and Editor-in-Chief of the Law Review.

ADVERTISEMENTS

As shown in the chart above, courtesy of the Center for Responsible Lending, home prices have dropped precipitously, and are poised to continue their slide.

Localized pricing data provides a bit more insight:

While the loss in homeowner equity is troubling by itself, this sustained downward trend is particularly alarming considering the high number of homeowners who are highly leveraged, and are thus more vulnerable to price decreases as they have less equity built into their home (this is relevant for homeowners who are attempting to sell -- if a homeowner plans to continue residing in a home, decreased or increased equity is largely irrelevant).

WaPo's second installment of their the mortgage crisis analysis explores the psychology and mechanics of the lending industry and lightly touches on the role of the credit rating agencies.

"Fraudulent loans were a big part of the subprime mess," [David Zimmer] said. Mortgage brokers forged borrowers' signatures and pumped up their income, he said. People seeking to buy and sell a home for a quick profit lied that they were going to live in the home -- qualifying for a lower interest rate. But People's Choice calculated that it would have been too complicated and expensive to go after fraud, Zimmer said.

. . . .

Then the credit raters -- Moody's, Standard & Poor's and Fitch, which over time had become high priestesses of the global capital markets -- astonished investors by abruptly downgrading many subprime-backed securities that they had previously blessed. The rating companies . . . came under criticism from investors who questioned whether they had issued rosy assessments because they had been paid by the banks whose securities they rated. The credit raters responded that they have procedures in place to prevent conflicts of interest.

The article also recounts some of the initial government responses to the lending crisis. Officials at the Treasury Department sought critical feedback from many sectors; one of the more sought-after advisers was Edward Gramlich, who explained that:

[B]orrowers went beyond their means and that lenders encouraged it -- and now homeowners needed counselors to avert foreclosures. . . . 'The subprime market, for all its warts, is a promising development, permitting low-income and minority borrowers to participate in credit markets.' But, he added, 'a majority of loans are made with very little supervision.'"

Full post as published by Urban Law Journal on June 18, 2008 (boomark / email).