Background

As the real estate market is credited for the rapid economic recovery, consumers turned homes into ATM's.  Cash borrowed against home equity from 1990 through 1998 was calculated in the average range of 50 billion per year in contrast with the period from 1998-2002 where this figure rocketed to approximately 300 billion per year.  The time period from 1995-02 encompassed over a 33 percent real increase in house prices in contrast with the boom periods of 1975-79 (approx. 17 percent) and 1982-1989 (approx. 18 percent). -- Jeff Rubin, CIBC World Markets, May 2003.

Conventional loans to low-income buyers leapt 75 percent between 1993 and 1998. Minority buyers increased at a pronounced rate, with blacks seeing 95 percent growth and Hispanics 78 percent. This growth in lower-income and minority homebuyers helped fuel the ascent of the subprime mortgage market, which grew at an eye-popping 880 percent. -- Predatory Lending: A Special Issue, Shutting the Door on Abusive Mortgage Practices: Bridges, 2001, The Federal Reserve of St Louis.

What federal, state and municipal protections will be provided for consumers, if real estate valuation is found to have been artificially inflated, to an extent proportional to accounting irregularities that fueled the stock market crash in 2002?

The Big Picture

Falls in world-wide equity markets during 2000-2002 saw markets decline by US$13 trillion or US$2,000 for every man, woman, and child on the planet according to ABN AMRO’s Global Investment Returns Yearbook, a study of long-term investment returns by Elroy Dimson, Paul Marsh and Mike Staunton from London Business School. -- New research report finds stock market losses total US$13 trillion since 2000.

For global property markets, the balance of risks is now shifting. With housing markets in about two-thirds of the world either in or close to a bubble, the impacts of the coming normalization of monetary policy cannot be taken lightly. Courtesy of property-induced wealth effects, the global economy was neatly able to sidestep the potentially devastating aftershocks of a burst equity bubble. As the liquidity cycle now turns, the odds are that the world will not be so fortunate the next time a bubble bursts. -- Global: Global Property Bubble? (Part I), MSDW Global Economic Forum, July 15, 2004.  See also: House of Cards: Survey-Property:The Economist, 29 May 2003. See: Housing and Housing Market Bubbles, NYU, Leonard N. Stern School of Business.

In The Spotlight

• Americans may have mortgaged future on high home prices: We live in a hot real estate market (median-priced homes in the Washington area rose 14 percent in 2003 to $286,000 and are up 57 percent since 2000), but we aren’t all that different. Since 2000, the national median price for existing homes has increased 23 percent to $170,000, and many gains are much larger: 31 percent in Boston to $413,000; 64 percent in Los Angeles to $355,000; 32 percent in Minneapolis-St. Paul to $200,000; and 74 percent in West Palm Beach-Boca Raton (Fla.) to $241,000. Robert Samuelson, Newsweek, 21 April 2004.
• Housebound: According to Warren (Harvard Law Professor) and Tyagi over the last 25 years bankruptcies by families have risen by more then 400 percent, by the end of the decade they project, one in 7 families - many headed by college educated professionals will have filed for bankruptcy - Daniel McGinn, Newsweek, 15 September 2003 (PDF: Harvard Law School).
  
• Ending the Foreclosure Crisis: Annual foreclosures started in Chicago increased 74% from 1993 to 2001, from 4,927 to 8,556.   Several community areas on the south and west sides of the city experienced over a 300% increase in the number of foreclosures started. There is a similar story from Cleveland where foreclosures started increased 200% in the past four years. -- National Training and Information Center.  See also Predatory Lending Claims Available to Borrowers in Foreclosure: In handling mortgage foreclosure cases in Illinois, a variety of defenses exist at both at federal and state levels. The Illinois Technology Center for Law & the Public Interest.
• Quantifying the Cost of Predatory Lending: U.S. borrowers lose $9.1 billion annually to predatory lending practices that include (1) Equity Stripping, (2) Risk-Rate Disparities, and (3) Excessive Forclosures.  A Report from the Coalition for Responsible Lending, Eric Stein, July 25, 2001. -- Visit the Center for Responsible Lending, a unit of the Center for Community Self-Help (Self-Help), based in Durham, NC. Self-Help is one of the nation's leading community development lenders and has provided $1.6 billion in financing to help more than 24,000 under-served families own homes or small businesses.
• Bankruptcy/Mental Health: U.S. Bankruptcy Court for the Eastern District of North Carolina's web site. 

U.S. Bankruptcy Statistics Non-Business Bankruptcy Filings for 1994-2004	1994 780,455 1995 874,137 1996 1,125,006 1997 1,349,510 1998 1,398,182 1999 1,290,346 2000 1,217,972 2001 1,492,129 2002 1,539,111 2003 1,625,208 2004 820,433 (1st-2nd Quarter)
Consumer debt is consistent  with bankruptcy filings Research by the Federal Reserve indicates that household debt is at a record high relative to disposable income. Some analysts are concerned that this unprecedented level of debt might pose a risk to the financial health of American households. A high level of indebtedness among households could lead to increased household delinquencies and bankruptcies, which could threaten the health of lenders if loan losses are greater than anticipated.
Personal Bankruptcy Fillings by Quarter  (click on the image to view a larger version)
Households per Filings, by State (Ranked) (click on the image to view as a PDF file)