BANKS ARE A LOT BIGGER, AND JUST AS POWERFUL
Ten years ago, American taxpayers had collectively rescued the nation’s biggest banks to the tune of $700 billion. The bailout triggered public anger and calls for the government to break up the nation’s biggest banks. It didn’t. A decade later, the largest banks are even bigger than they were then. They’ve long since repaid their bailouts. JPMorgan Chase, Wells Fargo, Bank of America — all giants before the crisis — are still the nation’s largest.
Politically, banks are once again exerting outsize influence in Washington, persuading the Republican-led Congress to begin easing the tighter regulations that were imposed on them after the crisis. And profits have never been higher. The Federal Deposit Insurance Corporation says the nation’s banks earned $60.2 billion in the second quarter — an industry record.
The government now applies “stress tests” to the largest financial institutions. The idea is to assure the financial world that the banking system remains sound and that any crisis can be contained. homeowners. That figure sank as millions faced foreclosure, spiking unemployment left many without savings for a down payment and homebuilders scaled back construction.
Just 64 percent of Americans owned homes as of mid-2018.
The downturn sent U.S. home prices tumbling, but the Case-Shiller index of home prices began recovering in early 2012. Home values have been climbing at roughly double the pace of wage growth in recent years. The result is that many would-be buyers can’t afford a home they would want and must instead rent.
In most areas — and without adjusting for inflation — home prices nationally are at or above what they were in 2008. The proportion of homeowners who owe more on their mortgage than their home is worth has returned to near-normal levels. And foreclosures are back to a more typical pre-crisis rate.
Those who survived the housing meltdown in good standing have prospered. Average 30-year mortgage rates plunged from roughly 6 percent to as low as 3.3 percent, according to mortgage buyer Freddie Mac. Some people used the lower rates to refinance their mortgages and save money. As a result, the Census said the median monthly cost for a homeowner was $1,491 in 2016 — roughly $170 less than in 2010.
SAFER MORTGAGE LENDING
Before the crisis, many lenders offered a bevy of risky loans that frequently cleared borrowers for financing even if they had no proof of income or no money for a down payment. Many such loans were interest-rate time bombs that let buyers pay little in the first few years of homeownership and that then smacked them with a hefty mortgage payment increase.
Banks had little incentive to ensure that borrowers had the means to afford payments. That’s because the lenders promptly bundled and resold the home loans to Wall Street via what was then a vibrant, private secondary market for home loans.
Ten years later, it’s a different story. The underwriting rules that banks must follow for their loans to be considered “qualified” to be bought by the government have been tightened.