Criminal Probe in the Subprime Market

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Saturday, March 3. 2007

Last week while discussing the subprime mortgage meltdown and it's effects on the housing market on Bloomberg TV, I made a comment that host Rhonda Schaffler jumped on and caught me by surprise. I said something to the effect of this:

We're very early in the effects of this market meltdown's impact on the housing market. We're likely to see more bankruptcies and financial trouble for the lenders in the short-term. Then we'll see lending standards harden, regulation increase, criminal activity exposed... all these factors will conspire to make it significantly harder for first-time buyers for many years.

My intent was to emphasize the long-term nature of this problem for the housing market. Rhonda focused on the criminal activity comment. "When you say 'criminal activity' are you saying you know something beyond what we know already?" she asked.

Rhonda wanted to make sure I wasn't directly accusing anyone of criminal activity. Of course, I only meant to point out that in the frothy bubbly markets, these things have a way of rearing their ugly heads after the fact.

Exactly one week later, this news alert crossed my desk from the WSJ:

NEWS ALERT
from The Wall Street Journal

March 2, 2007

New Century Financial is the target of a federal criminal inquiry into its accounting and trading in its securities, and said its auditors could warn of "substantial doubt" over the home lender's ability to remain in business. Fremont General, another big lender, said it plans to stop making subprime residential loans and is in talks to sell that business.

The news came the same day federal bank regulators announced a crackdown on loose lending standards on subprime home mortgages.

It's a tough subject to be right about, but there you go.

Posted by Mike Simonsen in clients, Housing Market, Leading Indicators, Mortgage and Lending, press coverage, Real Estate Market, real estate research at 14:19 | Comments (2)

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I couldn't tell from her tone, did she think it was a good thing, or bad thing, that it's going to get harder for first-timers?

It's a good thing - it should be harder to get financing.

It's the fog-a-mirror easy money that got us into this mess.

#1 Jim Klinge (Link) on 2007-03-04 08:17

Good post. I've had mixed feelings over the "tightening" of loan requirements. In a good way, we may see reduction in the number of cases of mortgage fraud. But, on the other hand, many hard-working Americans will find themselves unable to qualify for a loan because of stricter guidelines. Sad to say, but lenders really have no other choice at this point.

#2 Lucy (Link) on 2007-03-21 10:35

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