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January 26th, 2009

Flipping Through 2005 is Like Looking Into a Crystal Ball



It occurred to me this morning that the years 2005 and 2008 have a lot in common. Last year seemed to be the time that several of the fears, predictions, and long-awaited reforms originally discussed in 2005 came to fruition.

Just this morning, I was handed a couple issues of National Mortgage News (NMN) dating back to 2005. It was like looking into a crystal ball. Flipping through the issues, I read stories written on the predictions that home prices will fall in the years ahead, the goals outlined for a RESPA and GSE reform, and warnings from Countrywide’s own Angelo Mozilo that borrowers and lenders should take the increase in subprime lending more seriously. A lot has changed, and many predictions have come true since 2005.

“The executive’s biggest concern is that lenders are letting underwriting slip to dangerous levels, putting borrowers and lenders in desperate trouble if rates rise or employment falls,” read an editorial piece from the March 21, 2005 issue. Mozilo, although completely correct and perceptive, obviously failed to heed his own warnings — Bank of America acquired the failing Countrywide in July 2008.

Two months before Mozilo’s concerns were published, some economists had already begun to predict a future fall in home values “in the years ahead,” warning of a potential housing bubble. “It is push marketing of homeownership from a policy level and setting people up for failure,” said former federal housing commissioner William Apgar. A decline in home values and a burst of the housing bubble led to a wave of foreclosures in 2008, toppling several long-standing financial institutions and Wall Street investment firms.

Yet, while policymakers seemed to be ahead of the housing curve — pushing RESPA reform as well as a bill to strengthen the regulation of Fannie and Freddie in 2005 — the fruits of their labor remained unaccomplished until 2008.

In 2005, HUD Secretary Alphonso Jackson revealed his timetable for RESPA reform to be published was spring 2006 — it didn’t occur until November of 2008. Lawmakers promised to work on a GSE reform with “deliberate speed,” even saying they were “going to get it this [2005] year.” The reform never hsppened — Fannie and Freddie were entered into a conservatorship in September 2008.

It’s interesting to note the connections between 2005 and 2008. Yet, given the time it takes for policy and predictions to blossom, it will be interesting to see which events, warnings or initiatives of the past year will be resurrected as omens for the future.

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2 Responses to “Flipping Through 2005 is Like Looking Into a Crystal Ball”

  1. Stevie Nichts Says: January 27th, 2009 at 10:21 pm

    This is a great post. It’s true that the seeds of today’s problems can be found in yesterday’s news. And hey, maybe Angelo Mozilo wasn’t just the “bad guy” here — he was out there warning about the untenable market, after all.

    How about some more on this? Maybe you could make a timeline out of it.

  2. Tim Manni Says: January 28th, 2009 at 8:57 am


    Thanks for your comments. You will definitely see more from where this came from. I really only explored two issues of NMN from 2005; imagine what else we can find as soon as we dig a little deeper. Mr. Mozilo definitely took a lot of heat, becoming a “fall guy” of sorts.

    You know, I’ve been thinking a lot about a timeline for quite a while now, thanks for reminding me.

    Always good to read your comments, thanks again,


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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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