The Mortgage Crisis and Amy Winehouse

Rest in Peace Ms. Winehouse. I would write a snarky comment about her “Rehab” hit and her ironic fate, but I will refrain, as it is still a tragedy, especially for her family. It doesn't matter if you are at the top because even those at the top are human, and, as humans, we are all susceptible to the same downfalls. But it does seem as though the fall is further the higher you go.

Her death has drawn a considerable amount of criticism over the past few days, and it got me to thinking.

Aside from drawing comparisons to the “27 club,” her death reminds me of the U.S. mortgage crisis in late 2007.

Of course, this post is in no way meant to disrespect Ms. Winehouse, but the comparison seemed very clear to me.

Her rise to fame was like a rocket, quick, exciting, and fascinating to watch. However, what started out as a seemingly good career made turn for the worse as addiction began to play a larger role in her life.

Things started to fall apart and tours had to be cancelled. She was even being “booed” off stage at her performances. A downward spiral ultimately ended in her demise.

In similar fashion, GSE's like Fannie Mae (FNMA), Freddie Mac (FRE-G), and the Federal Home Loan Banks were striving to improve home ownership by meeting Housing and Urban Development (HUD) housing goals. Something that started well, like Ms. Winehouse's career, was essentially doomed because of future circumstances.

In 2003 to 2004 the market shifted away from GSE's towards Mortgage Based Securities (MBS). These securities were issued by unregulated private label securitization conduits, which were, in most cases, operated by investment banks.

Once again, a comparison can be drawn to Ms. Winehouse's first signs of addiction and the shift to MBS.

GSE's had to lessen their underwriting standards in order to gain back lost market share.

There was massive growth in the private label securitization market, and the lack of regulation resulted in the oversupply of underpriced housing financing. An increasing number of borrowers, usually with poor credit and unable to pay their mortgages, caused an abrupt increase in home foreclosures.

Increased popularity, like the increase in popularity of MBS, seemed to go hand-in-hand with addiction, which caused Winehouse to cancel shows, and tours, similar to home foreclosures.

As a result of increasing foreclosures, GSE's took a huge hit, and because they backed the majority of U.S. mortgages their shares dropped more than 90% in mid 2008 from the previous year. A serious fall from grace. Unfortunately, this is once again similar to the sad fate of Amy Winehouse, but she dropped 100%.

This post was in no way meant to trivialize the death of Amy Winehouse. Maybe this is a loose comparison, but I couldn't stop thinking about it.

What do you think about the death of Amy Winehouse?

#CRE #economy #finance