House flippers triggered the housing crash in 2007

[Sai T.]

If this true then we see the same in 2017!

https://qz.com/1064061/house-flippers-triggered-th...

[Matt Shields]

I was at ground zero during the crash working in real estate. While there were many things that contributed to the market downturn, two problems were the main cause, and neither has been fixed. First no money down loans. Despite what the government and pundits tell you they never went away. For example, an FHA requires only 3.5% down, but the dirty little secret is that buyers can receive up to 6% in seller concessions, and add to that another 4.5% from down payment assistance programs.

The second is non-recourse loans required by many states including here in Arizona. When you combine homeowners with no equity and a loan that they can walk away from without a possibility of being sued by the lender, it is a recipe for disaster. What began as a small downturn in the housing market became a crisis because homeowners with no equity and nothing to lose began walking away from their mortgages, further driving down the market. Many didn't even try to short sale because it was of little benefit to them, and this resulted in entire neighborhoods being nearly vacant. These homes then became the targets of thieves and vandals lowering values to a fraction of their original worth.

If homeowners have substantial equity in their homes they are not likely to default in a small downturn, at least not until the market falls below their equity. Even then, if homeowners know they will face a lawsuit by their lender this will deter a foreclosure, and if needed mortgagers will sell off everything to make the payments. During the crash, it was so frustrating to watch people let their current home go back to the bank, while they moved all of their cars, boats, motorcycles, and giant TV's to a new cheaper home. Their only punishment was damaged credit, but now enough time has passed that their credit is restored and they are ready to start the process all over again. It's not so much that history repeats itself, but people never learn.