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How Speculators Poured Fuel On The Housing Fire

New research from the Federal Reserve Bank of New York show that nearly one third of purchasers during the boom years already owned a home. Furthermore, the loans they used for their purchases during this period were predominately sub-prime loans where minimal downpayments were required. Finally, it was pointed out in the report that while 20% of these buyers represented that they were investors who would not be occupying the home, the actual percentage of investor purchasers was closer to double the 20% number. The report goes on to say:

The availability of low- and no-down-payment mortgages in the nonprime sector enabled investors to make these bets. This may have allowed the bubble to inflate further, which caused millions of owner-occupants to pay more if they wanted to buy a home fornalr their family. In the end, even the value of the 20 percent down-payments made by responsible, prime borrowers was wiped out—leaving the housing market, and the economy, in the vulnerable state we find them in today.

To read the entire Wall Street Journal article, click here.

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