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“An important lesson from the crisis is that just because someone is willing to make you a loan, it doesn’t mean that you should accept it.” “In doing so, they created a lot of leverage in the system and introduced a lot more risk.”Ĭredit expanded in all directions in the build-up to the last crisis – “any direction where there was appetite for anyone to borrow,” Keys said. They also increased access to credit, both for those with low credit scores and middle-class homeowners who wanted to take out a second lien on their home or a home equity line of credit. Keys noted that these new players brought in money from sources that traditionally did not go towards mortgages, which drove down borrowing costs. These were by new players, and they were funded by private-label mortgage-backed securities - a very small, niche part of the market that expanded to more than 50% of the market at the peak in 2006.” “That’s $3 trillion dollars going into mortgages that did not exist before - non-traditional mortgages, so-called NINJA mortgages (no income, no job, no assets). “We had a trillion dollars more coming into the mortgage market in 2004, 20,” Wachter said. As the mortgage finance market expanded, it attracted droves of new players with money to lend. (Listen to the podcast at the top of this page.)Īccording to Wachter, a primary mistake that fueled the housing bubble was the rush to lend money to homebuyers without regard for their ability to repay.
Bubble burst drivers#
However, some misperceptions about the key drivers and impacts of the housing crisis persist – and clarifying those will ensure that policy makers and industry players do not repeat the same mistakes, according to Wharton real estate professors Susan Wachter and Benjamin Keys, who recently took a look back at the crisis, and how it has influenced the current market, on the radio show on SiriusXM. More prudent lending norms, rising interest rates and high house prices have kept demand in check. is not about to see a rerun of the housing bubble that formed in 20, precipitating the Great Recession that followed, according to experts at Wharton.