Submitted by Taps Coogan on the 1st of June 2018 to The Sounding Line.

Wolf Richter, creator of the website Wolfstreet.com, recently gave a wide ranging interview in which he warns that the Federal Reserve may not jump to bail out the housing market during the next downturn, like they did during the 2008 housing crisis.

Wolf Richter:

“The mortgages that the banks have done are in pretty good shape. Banks have quite a bit of capital today and they have really been pretty critical of how they look at mortgage paper and it’s pretty pristine what they have… the problem we now have is these non-bank lenders (that) have jumped into the market… Quicken Loans has now become the largest mortgage lender in the country, bigger than Wells Fargo, and they’re not that regulated. The Fed doesn’t regulate them. They’re not banks and they all pay the money, not from deposits, but from issuing bonds and from securitizing the mortgages that they originate. They do subprime mortgages and their primary business model is growth so they don’t really worry that much about risk. Many of them were born after the financial crisis, so again, we don’t have any history on some of them and that’s where the risk lies this time. It’s not the banks. This time it’s going to be the non-bank mortgage lenders. That’s where the risks are. That’s where the subprime is. That’s where the sloppy underwriting is… This time the Fed will not step in to stop a decline in the housing market because the banks aren’t at risk… Last time the Fed stepped in and so people learned that and they think that there is a Fed put on it… and it looks like because the risk has deviated away from what the Fed is in charge of, the Fed is gonna let this happen… If it doesn’t impact the banks, the Fed’s gonna let this thing slide.”

Enjoy the full interview above.

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