While sifting through the stories each morning to produce MortgageOrb's daily dose of pertinent industry information, I've noticed that a strange thing has been happening lately in real estate finance news.
The daily headlines themselves have not changed. In fact, they look strikingly – and sadly – familiar: ‘Mortgage Trouble Is Doubled.’ ‘Toxic Debts And The Need For More Liquidity.’ ‘Emergency Meeting To Find Way Out Of Mortgage Crisis.’ ‘We Must Not Talk Ourselves Into A Recession.’
The difference, however, is that these headlines, most of which leapt to the top of major online news-distribution filters this week, are suddenly not referring to anything happening on this side of the Atlantic Ocean. This time, it is the U.K., Spain, Ireland and other countries that have joined in the unfortunate trend of experiencing disturbing developments in their real estate markets and associated financial realms.
Just how contagious is our mortgage meltdown? Because of the intricate network of financial threads that links country to country, and the prominent position the U.S. holds in that network, it appears that a mortgage crisis can, and has, spread like a virus.
According to a recent article by Mark Landler in the New York Times, property prices have been dangerously dropping as far away as certain locales in India and southern China, and numerous European countries have been hit with full-fledged mortgage maladies.
‘This is not the first housing downturn to cross borders, but its reverberations have been amplified by the integration of financial markets,’ the article explains. ‘When faulty American mortgages end up on the books of European banks, the problems of the United States aggravate the world's problems.’
It seems perhaps inconsiderate to transmit a disease and then hope to be inspired by others' versions of a cure, but an inevitable question as these global developments unfold is what we in the U.S. might be able to learn from our European neighbors' responses to their respective mortgage crises.
No such luck so far. Britain appears to have followed the U.S. not only in seeing rampant home-price appreciation and equally startling declines, but also in introducing meltdown antidotes that rely on government debt.
While specific details of the Bank of England-orchestrated plan have yet to be set, ‘The scheme would temporarily allow banks to swap their mortgage-based assets for government bonds,’ writes Stephanie Flanders in a BBC News article. ‘The hope is that banks will find it easier to borrow and lend to other banks using these bonds as security, which in turn would ease up lending to individual borrowers.’ Sound familiar?
British industry trade association The Council of Mortgage Lenders, meanwhile, has called for more drastic action. Interestingly, in warning of potentially disastrous effects if the liquidity crisis is not adequately addressed, the group's chairman, Steven Cranshaw, urged the government to act more like its U.S. counterpart:
‘Compared with the actions of the Federal Reserve in the U.S., our central bank stands accused of having been cautious and slow,’ he said in a London speech quoted in a Reuters UK article. ‘The main short-term palliative is in the hands of the Bank of England.’
In Ireland, where housing prices were even more inflated than those in the U.S. and the fallout has now arrived, no headline-grabbing major anti-foreclosure initiatives have appeared yet, even though residential investment accounts for 12% of the national economy, according to I.M.F. statistics cited in the New York Times piece. The reason is said to be a relative lack of foreclosures thus far – partially owed to a still-strong and immigrant-heavy rental market.
But if financial contagion has already crossed the Atlantic, it may be only a matter of time before this now-British disease threatens to claim a neighboring victim.
– Jessica Lillian, Commercial Mortgage Insight
