The housing market crash does not get the attention it did just 2 years ago, but the economy is still feeling the effects nonetheless. That crisis didn’t just appear overnight, although it came upon us like a tidal wave, and it didn’t just affect housing prices. The toll it has taken will continue to burden the global economy into the near future.
Currently there are millions of vacant homes in America, and mortgage lending has hit an all-time low. We now have more homes than homeless citizens in this country. The Great Recession of 2007-2008, which is still hanging around like an uncle on Thanksgiving, began with the manipulation of the housing market.
Mortgage lenders are required by law to be insured with a surety bond. The surety bond insurance company has to qualify the risk associated in bonding any company who provides a mortgage lending service. Since the causes of the crisis have come to light, mortgage lending risk has increased ten-fold.
One of the most damaging effects of the Great recession is the erosion of trust in banking and mortgage lending, and not just from the hard working people who got raked over the coals, this lack of trust is coming from the surety bond insurance companies. Mortgage lending is an enterprise, and up until 2007 it was a highly profitable one. The system became fraught with fraud and devious business practices, which eroded the foundation right from under our economy.
Housing and the building of houses are a major part of the American economy, so now that trust has been lost it has had a lasting impact on entrepreneurial mortgage lenders. Surety bond insurance brokers are more cautious about insuring lenders for obvious reasons. So many loans were approved and rated AAA that did not meet those qualifications. The loans were not the only factor; it was also the derivatives that pushed the housing market over the cliff.
Surety bond insurance is required in many industries in order to “ensure” that a service is delivered to the specifications that were promised. If a mortgage lender is promising they did their due diligence by qualifying their investments by strict standards, and in reality are scamming the system to the scale they were, it causes a breakdown in the entire system.
Mortgage broker bonds are an extension of the credit industry in that it provides a direct line of credit to mortgage lenders if a claim is brought against them. States require these mortgage lender bonds to ensure the lenders follow the states rules and regulation regarding lending practices, so you can see why insurance companies are reluctant to take on that risk.
Of course the ultimate lingering effects are high unemployment, tremendous loss in property value, and the vast transfer of wealth from the middle class to the top 1% of economic spectrum. For the housing market to recover credit has to become available, jobs need to be available with living wages so that people can be well qualified for mortgages, and investors need to treat investments like they matter more than to make a commission and bonus from. Here’s to hoping.