"Despite US Housing Market Decline...Low Risk of 2008 Financial Crisis Recurrence"

[Asia Economy Reporter Yuri Choi] Although the US housing market boom has ended, the Wall Street Journal predicted on the 18th (local time) that the likelihood of a financial crisis recurring like the 2008 subprime mortgage crisis is low. This is because the mortgage market has been reformed and loan soundness improved by learning from the crisis at that time.

Before the 2008 financial crisis, banks and lending institutions did not properly verify the income of mortgage applicants. In contrast, now they require numerous pieces of evidence proving that applicants have the ability to repay.

In politics, financial risks have been reduced through the financial reform law known as the Dodd-Frank Act since 2008. Regulators eliminated derivatives that allowed loans to borrowers lacking repayment ability.

Adjustable-rate mortgage products that initially enticed borrowers with low "teaser rates" despite limited repayment capacity have now changed into conservative loans available only to borrowers with excellent credit ratings, and all loan products that did not require income verification have disappeared. After the COVID-19 pandemic, real estate prices rose significantly and the down payment (a type of deposit paid in cash, not a loan) ratio increased.

Between 2020 and 2021, competition among buyers for housing inventory was so fierce that many buyers purchased homes by increasing the initial cash payment ratio, which had the effect of lowering the overall loan-to-value ratio of homes, according to analysis.

According to CoreLogic, a real estate data company, US home prices fell sharply by 28% between 2006 and 2009, causing 11 million households to fall into an "underwater mortgage" state where the home value was less than the mortgage principal. However, this time it is estimated that home prices would have to drop by 40-45% for the same scale of underwater mortgages to occur.

According to a survey by Black Knight, a mortgage software, data, and analytics company, as of last October, only 0.96% of all mortgage holders were in a situation where their loan balance exceeded their home value.

This content was produced with the assistance of AI translation services.