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Housing Bust 2? Subprime No-Down-Payment Mortgages Surge, “Shadow Banks” Dominate

Interesting article. The current housing bubble will almost surely burst even worse than the last one did. George Santayana is often quoted as saying that, “Those who do not remember the past are doomed to repeat it.”

Livinglies's Weblog

bankcrak

Some of the same characters that played leading roles last time.

The value of the US housing market has ballooned to $26 trillion. In many markets, prices exceed even the peak or the prior bubble that blew up so spectacularly. This construct is weighed down by $14 trillion in mortgage debt, or about 76% of US GDP. Of that, $10 trillion is owed on one- to four-family residences. The numbers are big – and they matter.

But who’s doing the lending? More and more: nonbanks, evocatively called “shadow banks.” They have now overtaken commercial banks “to grab a record slice” of government-guaranteed mortgages, Attom Data Solutions reported in its housing report.

And these shadow banks are different:

[T]hey typically borrow from Wall Street hedge funds, private investors, or banks to make loans, then quickly sell these mortgages to Fannie Mae…

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