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Gold $1273.9 -2.8
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Talk to a representative: 855-242-4121

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Increased Regulation: Setting the Stage for ANOTHER Mortgage Crisis?

As you surely remember, the subprime mortgage crisis of the previous decade led not only to a 2008 collapse in the real estate market, but the onset of the Great Recession, as well. The “clean-up” in the debacle’s aftermath saw loan underwriting standards undergo a massive re-tightening, to the point where only the best-qualified candidates were eligible for a home loan.

New regulations fell hardest on traditional depository institutions, constraining their retail lending ability. All too happy to step in and fill the void have been non-bank lenders (think Quicken Loans), who’ve traditionally lingered in the shadows of their more “legitimate” mortgage brethren. It is the growth of these alternative lending outlets, which are not subject to the same rules and regulatory scrutiny regular banks must now endure, that some believe could be responsible for the next great financial crisis within the U.S. economy.

An article at the Bloomberg website makes the case that regulators have effectively encouraged the rise of these non-bank lenders – and, in turn, encouraged the potential rebirth of the same subprime borrowing that previously devastated the economy – by handcuffing traditional banks with stringent rules that do not apply as readily to non-bank mortgage providers. Following the 2008 fiasco, regulators implemented several measures to help ensure the nation’s network of banks remains stable. Those measures include hiking capital requirements and mandating that banks who wish to service mortgages comply with an array of additional and costly rules.

Non-Bank Lenders Can Offer Mortgages to Less Creditworthy Borrowers

Because non-bank lenders haven’t been forced to contend with the same new requirements as banks, they’ve been able to not only originate many more loans than they did previously, but also make those loans available to borrowers who don’t possess the same creditworthiness now required by traditional banks. As Bloomberg details, by the end of 2016, lenders such as Quicken were responsible for over 40 percent of new conventional mortgages, a figure that had doubled from 2008. The article also reveals that, for loans backed by the Federal Housing Authority (FHA) – the type of loan often provided by non-bank lenders – the average FICO score has dropped to 680.

A potential result of this unsettling trend is a housing market increasingly comprised of lower-quality mortgagors getting their house-buying money from lenders that may be largely ill-equipped to deal with a flood of delinquencies. Some believe the ultimate result could be another full-blown mortgage crisis that destroys the U.S. economy for years.

The astute investor will read this and wonder if their investment portfolio, including retirement accounts, is properly configured to withstand an economic collapse such as the one precipitated by the subprime mortgage implosion of the previous decade. Fortunately, physical gold and silver have demonstrated the capacity to not only protect portfolios during periods of economic disaster, but even thrive in their wake. If you would like to learn more about how precious metals have the potential to diversify your holdings to not only protect wealth, but build it, during periods of great economic upheaval, I encourage you to call Augusta Precious Metals at 855-242-4121 and speak with one of our dedicated gold and silver specialists.

While it may be a little too soon to tell if we’re again looking down the barrel of another devastating mortgage crisis, you’d be wise to pay attention to the relevant trends and look for a method of asset protection. The significant growth in mortgage origination by lower-capitalized alternative lenders, as well as the renewed erosion of underwriting standards, could mean big trouble for the U.S. economy – and your IRA/401K – in the near future.

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Michael Dallo, CPA, JD, LL.M. is a tax attorney and certified public accountant (CPA) of Dallo Law Group, a Professional Corporation. For over 10 years, Michael has zealously represented hundreds of clients in resolving tax disputes with the Internal Revenue Service and California taxing agencies, as well as developing sound tax positions and arguments to minimize their federal and state tax liability.