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SUBPRIME
FORECLOSURES: THE PRISONER'S DILEMMA "...When
house prices fall, foreclosure rates rise. But that only "HOUSE PRICES to recover next year," said The Times of London on 17 November, 1989. Real estate in the United Kingdom had risen three times over on average during the previous 10 years. National prices rose 40% in the last 18 months alone! But now, suddenly, house prices had stopped rising. When would the good times kick off again? The Bank of England did all it could, slashing UK interest rates by one-third. Mortgage lenders put on a brave face too, easing their E-Z lending terms further still. And the gentlemen of the press were only too willing to talk up the market. No wonder, then, that "recovery [was] forecast for house prices in market awash with loan funds," as the Times reported in Jan. 1990. But not even broad money supply growing by 18% year-on-year could stop the rot. By July 1990, "the bottom of the current house price cycle may have passed," the paper went on. Come the fall of that year, however, The Times had to repeat itself again. "House prices bottom out...the long slide in house prices could be nearing its end," it said. National prices continued to slide regardless. By Sept. '91, real house prices – adjusted for inflation – stood 25% down from the peak. "House-price surge is on the way," said The Times, "but wait for it." No fooling! The following month, Oct. 1991, The Times finally admitted that "Fall in house prices dashes market hopes." Why so glum – and who was to blame? The mortgage lenders looked guilty. But they were now suffering record late payment rates. At least one major bank looked set to go under. Mortgages more than 6 months in arrears accounted for 3.5% of all loans outstanding at the start of 1992. Cue The Times to report that "record repossessions are keeping down house prices" – even though the mortgage lenders themselves had long since stopped repossessing when they could possibly help it. America's mortgage lenders may well try the same remedy in 2007. Adrian
Ash
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