| Government is about to become a Sub-Prime Lender |
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| Monday, 21 April 2008 19:36 | |
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Media release (immediate) 13th February 2008 CRMS warns that Government is about to become a Sub-Prime Lender. The Prime Minister has confirmed that Government will launch a shared equity scheme in July to assist low income households buy into the presently highly inflated housing market. Launching such a scheme at this time is fraught with risk. In effect the Government is entering the "sub-prime" mortgage market by either supplying or guaranteeing loans to purchasers who otherwise would not qualify. Naturally, the government will demand the sub-prime loan must be repaid on sale of the property. It is proposing to do so just when the housing bubble in New Zealand appears about to burst which will mean that many borrowers will see their equity disappear as valuations fall. The first equity to disappear will be the Government's "Shared Equity" because it has topped up the loan. We have seen what happened to the financial sector in the US when the housing bubble burst and there is no reason to assume the same thing will not happen here – only here, after July , the Government is likely to be the major sub-prime lender. As soon as the Government becomes a Shared Equity sub-prime lender it has a massive conflict of interest. On the one hand it wants to make housing more affordable but will soon realise that if it does it will lose its Shared Equity investments. Hence the Government's interest is best served by keeping housing highly valued and hence unaffordable. Which way will the Government jump? |
