We all remember how things went during the 2008 financial crisis, and while those who lost their jobs in the financial markets tried to laugh it off, we all knew how much people have suffered because of this. Many have lost their homes, their living, and some even lost everything but the shirt on their back. And lately, with reports of the private equity firms doing similar things as the banks that caused the 2008 crisis are popping up, we can’t help but think if it’s all happening again. Though is there any truth to this? Not about the private equity firms, we all know that they are in it for the money, but the 2008 crisis happening again.
Fortunately enough, though the private equity firms are not subject to the new rules put on banks, they also do not have the same power as banks to sell these junk mortgage bonds as investments to the public. Though, the market crash was tied in closely to the property market, it was actually the huge amount of leverage, money borrowed to purchase investments, used to buy the junk mortgage bonds, that caused the whole thing to collapse. So rest assured that things are not going to become as bad as what happened almost a decade ago.
How BAD could it get ?
While another crash is unlikely through this scenario, there is still the problem with private equity firms not being subject to the same rules as the banks. Though new rules are set up for them to ease up on the rates when a mortgaged home owner fails to pay for legitimate reasons, these only apply for newly purchased mortgage bonds, and there is more than a thousands of these bonds out there right now unaffected by this.
This affects good number home owners with mortgages and people who rent, as a lot of mortgages and rental properties were bought up by these private equity firms. When banks were the ones collecting on the mortgage, they were required by law to be more lenient when the situation of the home owner is valid, but private equity firms are not subject to these rules, at least the ones holding on to the junk bonds we talked about. This can lead to a number of foreclosures that would affect, though ever so slightly, the property market. Not to mention the whole problem with the people side of things.
And when it comes to rental, unlike having a landlord you can talk to, these equity firms are far away and almost impossible to negotiate with. So if you are late on rent, you might get the boot, unable to negotiate a deal or leniency like with landlords and banks.
Not to worry though, as officials have taken notice of this and have already made steps to even things out for all of us. And as I stated earlier, if there is another financial crisis, it won’t be because of the housing market.