The housing crash of 2008 is now 10 years in the rearview mirror, but the danger of another crisis lurks despite assurances to the contrary. Financial security expert Pamela Yellen, a two-time New York Times bestselling author, opines:
Backdoor Lending: The Subprime Work-Around That Could Crush Your Retirement
We’ve been told that the housing bubble and collapse was about predatory lending and high-risk borrowers who were duped into loans that they couldn’t afford. The massive regulatory response to the subprime crisis meant that banks were no longer allowed to behave badly. So they have chosen to behave differently – and that’s not a good thing, Pamela says.
“The largest source of mortgage lending in the United States is now being done by non-banks – financial entities that offer unsecured personal lending, business loans, leveraged lending, and mortgage services, but do not hold a banking license,” she says. “As a result, they're not subject to standard banking oversight and can engage in risky lending.”
Where do they get the money to make these loans?
Wells Fargo coughed up $81 billion; Citigroup and Bank of America ponied up $30 billion each; and JP Morgan threw in another $28 billion.
“By funding these ‘shadow’ banks, the big financial players are still in the risky loan business,” Pamela says.
Pamela notes we should be worried about startling facts such as these:
- Loans to non-bank financial firms increased six-fold from 2010-2017, hitting a record $345 billion.
- Shadow lending is now "larger than the world economy and poses a risk to financial stability."
- An astonishing 6 out of 10 mortgage lenders in the U.S. are now shadow banks – many operating online and peddling subprime loans.
“It was precisely this type of non-transparent, under the radar, backdoor lending that led to the soaring foreclosures, cratering home values, failing banks and dwindling retirement accounts of a decade ago,” Pamela says.