Bubble, bubble, toil and trouble?

Is another housing bubble going to blow up in our faces?

Home prices are soaring to levels not seen since 2007, and while that is making many homeowners smile, it is making some bankers sweat. According to a survey released today by FICO, “Mortgage bankers fear another real estate bubble,” says a survey released today by FICO, the company best known for its credit scoring. FICO says 56 percent of bank risk managers were worried that “an unsustainable real estate bubble is inflating.”

At the same time, FICO’s chief analytics officer adds some even more fretful stats.  Andrew Jennings says the home loan landscape is “bifurcated” – a fancy word to describe this contradiction… Six million homeowners still owe more on their mortgages than their homes are worth, while at the same time, home prices are soaring and total home equity is at its highest level since the recession. “That doesn’t feel like a healthy, sustainable growth situation,” Jennings says. “No wonder many lenders in both Canada and the U.S. are concerned about the risk in residential mortgages.” FICO also asked mortgage bankers for their “top concern when approving loans.” Not surprisingly, 59 percent cited that old nemesis from the recession: high debt-to-income ratio. “Debt-to-income ratio is a term many Americans aren’t familiar with, but it’s the No. 1 way to lose out on a mortgage,” says Gary Herman, president of Consolidated Credit. “While a house is the most expensive purchase most of us will ever make, there are many totally free resources that can help you buy the house of your dreams – or keep from being foreclosed on the one you live in now.” Herman touts his company’s Homebuyer Education and Counseling program, which puts new or existing homebuyer in touch with a counselor approved by the U.S. Department of Housing and Urban Development. You can also use Consolidated Credit’s free mortgage payment calculator to quickly find out how much house you can afford. “Mortgage bankers don’t want to see a housing bubble,” Herman says, “and we don’t, either. It’s not good for the economy, and it’s not good for potential and current homeowners.”

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