Why a US-Style Mortgage Crisis Can Happen Anywhere.

Industry and government organs in Canada, Australia, the UK, and other places with housing bubbles that are now deflating are trying to hide behind a false understanding of mortgage laws in the US and what happened during the US mortgage crisis. What happened in the US cannot happen here, they say to soothe their own jittery nerves. So I’m going to un-soothe those jittery nerves (13 minutes).

Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.

  48 comments for “THE WOLF STREET REPORT

  1. TCGlobalMacro says:

    Interesting and instructive, Wolf. Canadian banks say they have shifted the risk to mortgage-backed securities holders. Do you buy that?

    • Wolf Richter says:

      Yes, part of the risk. Mortgage insurers too carry part of the risk. Same in the US… that’s why the crisis spread so far because even people in Norway, who’d had these MBS in their pension funds, were impacted.

  2. gordon mcivor says:

    Clear, concise and complete analysis of this timely issue. Well done Wolf

  3. Iamafan says:

    The US subprime mortgage crisis morphed to a banking crisis, especially in the wholesale funding market. How Australia and Canada will end up is still anyone’s guess. But they at least know the answer beforehand, QE.

  4. Kenneth Pollinger, Ph.D. says:

    Great Educational Report, Wolf. If only every potential home owner would get this material, maybe much suffering could be avoided. Bu I guess it will never end with the powers that be in control, of whatever political party, as the bankers COLLUDE: See Nomi Prins’s Collusion.

    Please keep up the GREAT work you do. Ken

  5. Rowen says:

    I can’t tell you if there will be a mortgage/banking crisis, but there really is a Big House Crisis, especially in areas that were dependent on retiree dollars, and not actual income. Where I’m at, beach homes (mostly 2-5M range) have not been moving the past 2 years. Not enough buyers for supply.

    • BrianC says:

      I see this as well. Plenty of demand where well-off working families can meet the monthly nut. Near zero demand when you go beyond that. Unfortunately, the supply is skewed opposite. Plenty of people who renovated/added on/tore-down/remodeled there way out of the market. We all know what the answer is. I’m patiently waiting.

  6. michael says:

    Perhaps what happened in the US is not really over. It took rewriting of the accounting standards, delaying foreclosures, and first time home buyer credits to stem the tide of price declines. There is no real discovery in home prices in the US, therefore let the buyer beware.

  7. Roger_In_Sydney says:

    So why is it that when US house prices crashed during the 2008 global financial crisis house prices in Australia and Canada did not crash? If you can explain the reasons for this and then explain why those reasons no longer apply in 2019 you can then ‘un-soothe’ jittery nerves about recent house price declines in Canada and Australia. So far, Wolf, you haven’t done this.
    Differences in mortgage laws do not explain it. Differences in the honesty and integrity of the financial system do not . (Here in Aus, we just had a big inquiry that showed our financial system is just as corrupt as America’s).
    In 2008 the world had a major financial crisis, but Australia did not have a recession. Why? I’d love to hear your thoughts on this, Wolf.

    • Javert Chip says:


      I’m not Wolf, but I’ll guess Australia’s RE bubble wasn’t that big in 2007-8, and the mining & commodities boom carried you thru USA’s financial crisis (mining represents 60% of Australian exports). You’re RE boom took off after that.

      • Roger_In_Sydney says:

        I’m afraid your guess is quite wrong, Javert Chip. Australia’s real estate boom was massive long before the 2008 financial crisis. It did not take off after the 2008 financial crisis. Ditto the resources boom. It started back in the early 1990’s.
        Got any other explanation?

        • Iamafan says:

          Do you guys have subprime option ARM Ninja loans? Or is that an exclusive US patent? It was the combination of falling prices and unfit borrowers that originally hurt us.

        • coalman says:

          roger, one possible reason ,australia’s population increased by 24% between 2000 and 2016 mainly through massive immigration. also australia had massive chinese capital inflows that have now dried up.

    • Petunia says:

      Frank’s husband(I still don’t know how they figure that out) was a big deal at Fannie(not kidding) which is why Frank looked the other way for a long time. What happened wasn’t an accident. It was a slow moving pileup train wreck.

    • Wolf Richter says:

      House prices are now crashing in Sydney but not in the US (though they’re ticking down in some markets). Everything on its own schedule. Not everything runs in lockstep :-]

    • Bobber says:

      Chinese money supported the Australian RE market for a long time.

    • willy2 says:

      – 1) The australian government send every Household, that paid taxes, a check of $ 1000. Instead, the US government helped the banks.
      – 2) China kept stimulating it economy. That meant that chinese demand for australian iron ore remained (very) strong.

  8. Javert Chip says:


    If your goal was to “unsoothe nerves”, then mission accomplished.

    I’m a 72-year-old geezer, and have seen 4-5 previous cycles of this behavior, each with these 3 common themes:

    1) Real Estate is the only real way to get rich
    2) It’s different this time
    3) You can always sell to someone else (aka: a greater fool)

    After the all-to-predictable denouement, public anger focuses on bankers, appraisers, agents, and speculators, who undoubtedly are culpable, However, I’ve seldom seen anybody go after politicians or regulators, who are there EXPLICITLY to ensure the process does not spin out of control..

    Folks (like AOC) rooting for a bigger & more powerful government should take a hard look at the breakdown between “regulation” and “effective enforcement”. The bigger something is, the less likely it’ll work perfectly or be able to change quickly.

    My prediction: over the next 2-3 years, we’ll crash thru a few regionalized real estate busts that severely damage millions of citizens…once the dust settles, we’ll immediately head right back into the same risky processes that got us into trouble to begin with.

    • Petunia says:

      Regulation, enforcement, rule of law, surely you jest.

      • Javert Chip says:

        Nope, I’m with you…regulation, enforcement, rule of law – ain’t gonna happen

    • lenert says:

      Just old enough to have been to the premier of “It’s a Wonderful Life.” Will we ever learn?

      We live in a Blackstone(tm) town now.

      • RD Blakeslee says:

        Depends who “WE” are. Some of us have long been free of personal financial problems related to our housing. Incidentally, it’s hard for me to comment on the central theme of many of Wolf’s excellent analyses, because I’m relatively independent of it. “Relatively” of course, because no one escapes all collateral damage in financial downturns.

    • wkevinw says:

      Yes, proper regulation and enforcement of such regulations are a prerequisite for proper market function.

      This has been an item taught in undergraduate social science/economics courses for over a hundred years.

      Obviously easier said than done.

    • sierra7 says:

      Javert Chip:
      Perhaps you missed all the vile congressional hearings after the 2008 crash. Most of the principle regulatory leaders were before congress, chastised, embarrassed (if that’s possible) and exposed for what they were/are……a “wet noodle” barrier to the corruption that was exposed. But those hearings were very entertaining. The politicians themselves were also exposed to public scrutiny and has/is contributed to the precipitous downslide of their “integrity and honesty” which is contributing to today’s political/social US mess.

  9. Tarun Khanna says:

    as per all Bashers, we should put ” closed” sign on our borders..and say ” CANADA IS NOT OPEN BUSINESS”

    everyone is talking about financial crisis, blah blah

    who’s talking about 330k immigrants every year to Canada ?and I MEANT RICH IMMIGRANTS

  10. Gian says:

    My understanding is that subprime mortgages, NINJA loans and HELOC’s contributed bigly to the crash off 2008. As unqualified buyers began losing their homes to foreclosure and prices plummeted, those who were upside down began walking away as well. Of course, this lead to the great recession, further fueling the meltdown. If these conditions exist outside the US and things begin to go south, pandemonium will prevail, recourse or non-recourse. Panic trumps commonsense universally.

    • Iamafan says:

      Nicely said. But what if their currency is not the world’s reserve currency? Does it matter if their banks fall? It probably won’t reverberate across the Oceans like the 08 GFC.

  11. Paulo says:

    People don’t seem to have a problem driving off the car lot underwater, with every auto/truck purchase ever made. It all comes down to the monthly payment affordability meme and screening out sub-primers. I always remember the wise words of ‘Art’, logger barge-loader talking to a deckhand about his new house purchase. Art, “It isn’t what you can afford on your paycheque, it’s what you can afford when you’re not working”. Somehow, in this latest run of hot economies fueled on Govt, corporate, and consumer debt, people have forgotten what it’s like to lose a job or go through a layoff. Where I live loggers are laid off every fire season, for snow, and every market down turn. Wise workers in every industry learn to anticipate and plan for the downturns, because they always always happen. What? Has something changed? It’s called life, not house reno reality tv.

    This potential housing crisis will be just another lesson from the school of hard knocks, aka ‘reality’. The smart and prudent will do just fine.

    Did I mention Art retired quite well off with a healthy pension and investments? Not bad for a guy brought up in a west coast logging camp with no roads in or out.

    • RD Blakeslee says:


      Re ” The smart and prudent will do just fine.”

      They will, and they will be called “lucky” (or worse).


      • alex in san jose AKA digital Detroit says:


        Also, in Germany for example, every company has a Union representative on their board of directors.

        I think ideally all co’s should be co-ops. Workers own shares, just like whalers and pirates did.

  12. silvia smudge says:

    USA is special, no place other than USA is especially designed to ‘hose’ its citizens, so yes, no place else can have a real-estate ponzi like the USA.

    But a student need only study their history, going back the taking of USA land from the injuns, the USA was always a value-added real-estate flipping scam

    how does it end?? Not well

    Advice? Sell get out and RUN, before they close the exits.

    • alex in san jose AKA digital Detroit says:

      Silvia – First, that’s the best user name since “Mildred Monday” who was a character on the old Phone Losers of America site.

      Second, yeah, I really wonder if we’ll have travel restrictions come in. I already can’t fly using my California drivers’ license. I’m planning to get my passport renewed because of this. I’m wondering how creative I’ll have to be, to smuggle myself when I retire back to Hawaii where I grew up. Might I have to take a cruise and then jump ship? There’s a certain amount of sailing traffic between Hawaii and California too, maybe I escape that way.

      I’m really wondering if I should just get my okole over there ASAP. I’m not really living here, just surviving.

  13. deferral man says:

    1) Real Estate is the only real way to get rich
    2) It’s different this time
    3) You can always sell to someone else (aka: a greater fool)

    1.) Well until uncle-scam changes the tax-law, real-estate is the only way to ‘defer’ taxes, and in general defer means to defer your debt to gov post death. Blindly buying/selling RE of course is NOT the secret to wealth, study dTrumpf, about setting up S-Corps and paying zero-taxes while your earning, and deferring your capital gains to post death, then you might be on the right track to RE riches.
    2.) Of course going back to #1, its always been the same, and always will, so thus this time ain’t different, just only CPA’s really grasp and implement this stuff for real. The village idiot who buys a NINJA loan at peak market, of course for all time is the default; 20% down, 15yr fixed, and collect income tax free until you sell is the secret sauce.
    3.) Well not always, as they say if you can’t finger the ‘fool’ in your group then its you, and in general most fools do buy at the peak, that said buying low is quite easy, just go to places that are ‘out of favor’, at at the present time. Buy Low, sell High; Losers love company, and the people who get rich in RE are generally never seen.

    • SocalJim says:

      Your thinking is so 20 years ago. The scam artists are running a new game … they have moved on from structured finance game because of new regulations. They are now operating in the pre-IPO world, and a whole bunch of new finance structures have been put in place. Those structures present exposure in many unsuspecting places. For example, many large investments managers are putting your money to work in unicorns, and decacorns, and hectocorns … what a bunch of crap. Then, they run them out of IPOs. This whole game is ending, and a bunch of new regulations will happen after this game wrecks everything. UBER just called BS on all of this. But, you are still looking for gremlins in structured finance.

  14. SocalJim says:

    Real estate cycles are just a normal part of the business cycle. But, 2008 was different than normal because the media morphed a normal real estate downturn into a financial panic. The media knew the worse the housing market, the better the Democrat’s chances in the elections. So, they ran non stop stories which scared people with jobs and normal mortgages to the point where they walked away from their homes, By far, the overwhelming number of defaults occurred on normal mortgage products with 20% down, and many of those defaults were optional because people actually believed their home values were going to nothing. Of course, the defaults wrecked the mortgage markets, and a financial panic occurred. The stock markets crashed and stories were told of Democratic officials cheering the carnage because it improved their election chances. What should have been a normal real estate downturn was turned into a financial panic. And, it could happen again although it would not be as severe since we have seen this movie before. More likely is a normal real estate downturn where the mortgage market stays intact.

    • alex in san jose AKA digital Detroit says:

      Teh Evul Media, how dare they report on things!

  15. Iamafan says:

    It’s not just that the sub-prime mortgages blew up. There were lot of DERIVATIVES linked to these securities. Then the dominoes fall, they begin to trip on each other. Contagion is an ugly word.

    • sierra7 says:

      That “derivatives” salami was sliced thinner and thinner and then thinner still until there was not more “slicing” into thin air. And that slicing was done with all the regulators, politicians, bankers, etc looking on holding their corrupt breaths. The game is still the same: “Screw the nearest before they screw you”…..Not saying that we all play that game but that’s what our style of “crapitalism” is….It is what it is……..Buyer (always in all instances and with all products) Beware!

  16. economicminor says:

    I see people compartmentalizing everything. Which may have been correct in the past but today there is so much accumulated debt on every imaginable asset that the real estate bubble is an aggregated asset and does not stand alone.

    When the stock market bubble finally bursts, and it will as there are way to many Zombies, it will cause massive rolling series of layoffs. That will cause credit card and auto loan defaults and eventually mortgage defaults, possibly even a lot of Pension system defaults.

    We are supposedly in the Greatest Business Boom in History. Yet the government is creating $trillion+/yr deficits. Which in our reality is a $trillion+/yr of additional capital into our economy. When that isn’t enough to keep fueling (servicing) all the other debts the system will collapse.

    Government deficits should be a boon to the economy and they are until they aren’t. The CBs can not just print money. That is not legal under their mandate. All they can do is create debt which will be collapsing when the business cycle finally rolls over. Then the money supply will collapse.

    In the end I see a deflationary future and many years of reconstruction.

    Of course the government could increase its deficit spending to $2 or $3 trillion+/yr and that could change the outlook but that doesn’t look likely with the Congress we have today.

    • Iamafan says:

      The only real thing that is important (for the Fed or Treasury) is how the big banks are doing. [Remember Mnuchin’s call about liquidity.]

      You can study how Year By Year, Bank Assets skyrocketed leading to the crisis. Also you can see the composition of the TYPE of assets. Great learning tool – the Fed’s H.8. reports. Superimpose the ARM rates (from St Louis Fed) and the Case Schiller housing prices (increase then drop) then you can see a very clear picture. At least you can understand HISTORY (looking backward). Not the future.

  17. SocalJim says:

    There may be local housing issues on the horizon that put some stress on the mortgage market, but not enough to break it. For example, the UBER IPO just called BS on the entire so called Silicon Valley model where one hires dozens of H1B programmers that build a quick application which underlies a money losing business. They call it visionary then IPO that garbage. The money is rolled into housing.
    UBER has put an end to this visionary nonsense, and that causes a bay area housing market swoon. But, I don’t think this will morph into a mortgage crisis … but it might.

  18. timbers says:

    Looks like China has figured out America’s Achilles’s heal in the trade war – the stock market. So much for the US holding all the cards in a trade dispute.

    • Javert Chip says:


      If you think the US stock market is a risk, it’s the gold standard compared to China’s. If that’s their secret weapon…well good luck with that. Underlying the US stock market is the fact the USA still makes & sells goods & services that the world actually wants.

      I suspect China is making somewhat the same deal with its citizens as Russia has made: we’ll continually improve your material life but you understand have totalitarian control over your life. China funds a good deal of activities with trade imbalances; if that equation deteriorates, we’re in unknown territory.

  19. Any economic problem will be met with lower interest rates, one tradeoff. Banks don’t want to foreclose, another tradeoff, no mark to market. A great deal of mortgage debt is off balance sheet, MBS. The courts have no idea who owns these homes, and have trouble forming a resolution. It may take some homeowners decades to get out from underwater but the courts and the system will see to it they retain ownership.

  20. Old Codger says:

    A bad debt, is a bad debt, is a bad debt!

    ……As the world will learn soon!

  21. Iamafan says:

    According to Corelogic…

    the delinquency rate for ARMs was higher than FRMs for loans originated before 2010, but the pattern was reversed beginning in 2010 as the riskiest ARM products, such as the option ARM and the interest-only ARM, largely vanished.

    Just the facts.

Comments are closed.