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Comment by throw123123123 | Hacker News Reader

Lax lending is not the core issue of a market crisis like 2008, it is the amount of leverage and debt.

You must look at how many people have cash in their banc accounts to cover mortgages if the stock market dives 50% and rates go up 2~4%. Can that generate a cascade of foreclosures?

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That's pretty much the same thing I am saying: if banks properly analyzed your assets like you describe and had prudent lending standards accounting for this, people wouldn't be getting the loans to artificially drive up prices. This article gives me no insight as to whether this is or is not the case.

Banks as well as people cannot take the uncertain fully into account. Without the government taking steps in 2020 there would have been massive foreclosures.

Isn't this assuming variable rate mortgages?

How will future mortgage rates generate a cascade of foreclosures for people with existing mortgages?

Adjustable rate mortgages and people who need to move who are now underwater. I couldn’t easily find nationwide stats on ARM issuance, but a quarter of First Republic Bank’s loans are adjustable rate.

https://ir.firstrepublic.com/static-files/1a464a0b-9396-4bd4...

Who is buying ARMs? The fixed rate is near all-time lows and is lower than 5/1 ARMs

ARMs are more risky but its not necessary to generate a mortgage crisis situation. You only need to see higher default rates.

If interest rates go up and that causes housing prices to drop, the same monthly payment can now only purchase a lower-cost house. People might not be able to sell for what they paid. Then if they need to move they must bring cash to the table. Even those that can afford to bring cash might still decide to go the foreclosure route.

In 2008 we even saw people pro-actively defaulting because they didn't want to make payments on something that was worth half of what they paid.

I'm not predicting any of this, but it is a possibility.

When housing drops significantly in value the debt is higher than the value of the home, making it underwater: now it is better for the borrower to default than to make payments. If you get defaults, then the bank has to flip the home into the market, increasing supply and dropping price, etc etc.

The narrative of 2008 has made lots of people believe that it was improper risk assessment, but the cycle of leverage and asset price fluctuation is the core mechanic and it acn easily repeat itself.

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