David Francis, The Examiner
2007-08-02 14:05:00.0
Current rank: Not ranked

WASHINGTON -

A three-minute chat with Ira Rheingold, executive director of the National Association of Consumer Advocates, about the woeful housing market in the region and how low it may go.

Each week, it seems as if there are reports of an increase in mortgage defaults due to subprime loans. What is happening in the housing market?

Around here, what we’re seeing is reflective of what we’re seeing around the country. We may be trailing behind the foreclosure crisis in some of the worst-hit areas. Unfortunately, I have every expectation that numbers will increase dramatically over the next couple of years.

Why are we seeing this now, considering that the housing market in the region was so strong for so long?

We’ve had a booming housing market for a long time. Housing prices grew to the point that they were unaffordable. In a traditional market, interest rates go up so people can afford less house. The natural reaction in the housing market should have been that housing prices should have come down. That’s what we should have expected a couple of years ago. But what occurred was a boom in mortgage lending. There was an enormous demand to make their loans, and there was an enormous need in the mortgage industry to make those loans.

Before the Internet bubble burst, former Federal Reserve Chair Alan Greenspan used the phrase “irrational exuberance” to describe the tech economy. Eventually, the fallout from the Internet crash spilled into the larger economy. Will we see a wider fallout from the subprime meltdown?

Absolutely we will. What we’re seeing here is Wall Street taking a look and saying, “What is God’s name were we buying?” There’s sort of a psychological impact to this. Money was flowing so much because everything was booming. It was irrational exuberance. The subprime market comes along and makes people take a hard look at who they were lending money to. At some point, you have to pay the piper.