The 2007-2010 housing crisis was caused by large banks selling tranches of subprime mortgages, many of which were–in a move that can be described at best as morally ambivalent–rated AAA by Standard and Poor's. These loans, given to buyers with startlingly bad credit, were gradually defaulted on, causing a major financial crash. Now, ten years later, there's cause for concern once again.
Amidst the collapse of Bear Stearns and the bailout of AIG, it's easy to forget about the federal government's hand in creating the 2008 recession. Back in the 1990s, Barney Frank, with the help of the United States Department of Housing and Development, decided to raise Fannie Mae's quota for purchasing loans from low income buyers. Over the course of about 15 years, from 1992-2007, these rates jumped from 30% to 55%. By the early 2000s, Fannie Mae was offering no-down payment loans and had bought over a trillion dollars in subprime mortgages. Of the 27 million outstanding subprime loans during the 2007 crisis, 70% were owned by the federal government.
The sudden fall of Bear Stearns' stock
Last year, Fannie Mae and Freddie Mac redefined the term subprime, lowering the credit threshold for what constitutes poor credit from 660 to 620, almost as if these agencies suddenly contracted amnesia. To make matters worse, the Federal Housing and Finance Agency's goals are to finance loans on about 400,000 low income homes each year from 2018-2020. While these loans aren't necessarily subprime, it's safe to assume that a good portion of them are. On top of this, Fannie Mae has also raised their debt-to-income (DTI) ratio limit from 45% to 50%, and the share of loans with high DTIs has jumped from 6% to 20% over the past year. The argument for these incredibly lax regulations is that many people had their credits decimated in 2008 and that millennials, the newcomers to the housing market, have more debt than other generations. It makes sense for the government to help struggling people find homes, but raising the DTI threshold while lowering credit requirements for mortgage loans is one of the riskiest methods conceivable.
The private sector isn't much better though, and investment in subprime mortgages is back; they've just been rebranded as nonprime (which isn't even a real word). Some companies, like Carrington Mortgage Services in California, are offering loans to people with FICO scores as low as 500, about 250 points shy of the current average for agency-backed mortgages. Obviously, there's a higher down payment associated with these lower credit scores, but the resurfacing of subprime loans is disturbing, particularly when a spokesman for Carrington says something like, "We believe there is actually a market today in the secondary market for people who want to buy nonprime loans." Never mind that this isn't a sentence, listen to what this person is saying. Banks are also latching onto this idea, and some have been known to offer mortgages for 0% down.
Fico credit score chart. During During the 2008 financial crash, a credit score under 650 was considered subprime.
Another disturbing development is the current popularity of Federal Housing Administration (FHA) loans. Currently, the FHA controls 21% of the total mortgage market and 35% of loans purchased by Millennial homeowners. These loans are traditionally designed to help lower income Americans buy houses. Nowadays, their loan limits don't necessarily reflect this. Loan limits, depending on the area, range anywhere from $294,515 to $679,650, and for buyers with a credit score of 580 or higher, these loans only require a 3.5% down payment. If someone's credit score is between 500-579, they can purchase a home for 10% down. Even if a mortgage company tacks on a 1.5-2% fee, this gives large swaths of people with ostensibly terrible credit the option to put only $25,000 down on a $500,000 home. The DTI threshold for an FHA loan? 57%.
To compound things further, 93% of FHA loans issued in 2016 were handled by mortgage companies, not banks. These companies, for obvious reasons, are much less resistant to liquidity issues than big banks, and there is research to suggest that mortgages issued by nonbank lenders tend to be associated with much lower credit scores. Not only are these companies woefully unprepared for an uptick in delinquencies–an uptick that's almost certain with the Fed increasing the interest rate–they're actively selling loans to high risk candidates. In the event that homeowners default on their mortgages, there's no way these companies can eat the cost. This is bad news for the Government National Mortgage Association (Ginnie Mae), the agency that manages and insures the FHA. While lenders dealing in FHA loans have considerable financial responsibility, if they can't foot the bill, the worst thing that happens is their company goes under. That financial responsibility doesn't disappear, it just gets passed up the ladder to Ginnie Mae, who would in turn be required to consolidate the tsunami of debt.
1.7 Trillion in outstanding loans...
It's worth noting that American citizens, unlike the federal government, have learned from their mistakes. For a while, adjustable-rate mortgages (ARMs) were undesirable, shunned for the hand they played in the housing crisis. Over the past few years people have slowly warmed to the idea of purchasing these loans, but it's unlikely that this will have any major effect on the economy for some time. That said, subprime lending is back up to 2006 levels. FHA loans have also taken a small dip, as quarter four of 2017 marked an increase in 'seriously delinquent' FHA loans in all but three states. While these things aren't necessarily harbingers of another economic apocalypse, there's definitely some reason to worry. The U.S. is over 21 trillion dollars in debt, and if there is another housing crisis, it probably won't end in a government bailout. The volatility of the housing market has been amplified to a deafening volume, and if we're hit with another subprime mortgage crisis in the next five years, the American economy will be decimated. The dominoes are in place. The only question is: what will tip the first one?
Even though some Millennials are almost forty, people are still bashing them.
Last year the New York Post ran an article about Millennials making up the largest portion of the American workforce, ignoring a glaringly obvious point: of course 22-37 year olds are the largest portion of the labor market; they're adults. In an effort to make a distinctly un-newsworthy article newsworthy, the Post settled on an old trope, pick on the Millennials. For its part, this article wasn't as bad as most. The author refrained from using words like "entitled" and "coddled" and "irresponsible," but there's still a certain connotation attached to the term Millennial, particularly in the way it pertains to work ethic and maturity. Repudiating a stereotype often doesn't have the desired effect; in fact, it has a tendency of validating the stereotyper.* That said, my editor's asked me to dissect the maelstrom of insults and unfair generalizations that surround my generation, so here it goes.
In order to parse the general themes of Millennial bashing from the tsunami of bull shit that's been thrown our way, it's important to acknowledge how it all started. In many ways, a lot of the Millennial-centric ire feels natural. Baby Boomers hated Gen Xers. WWII Vets were critical of Boomers. There's always been something decidedly adversarial about the relationship between a young generation and their parents. This is fine. It's one of the many growing pains associated with being a young professional. The strange thing is how long this anti-Millennial sentiment has lasted. Complaints about young folks usually stop before those young folks are forty.
One theory about Millennial bashing's longevity is that it's a symptom of the economic anxiety created by the financial crisis of 2008. Parents had already been lambasting Millennials for being entitled and not wanting to sacrifice their twenties to careers paths they weren't interested in and didn't respect. Boomers were more concerned with being pragmatic, while Millennials wanted to find meaning in their work. Naturally, this caused friction. Still, there was nothing out of the ordinary. At this point, Millennials were college and high school students.
We're just gathering around a single computer monitor to check out some sweet graphs. You know, millennial stuff.
Following the Great Recession, however, this friction was compounded, as Boomers and Gen Xers everywhere lost pensions and 401ks, and their supposedly 'safe' jobs went up in smoke. When slapped in the face by reality, Boomers realized that sacrificing the best years of their lives to jobs they hated yielded very few tangible results. They were understandably upset. There's plenty of pop psychology out there that'll tell you people hate being wrong, but when by virtue of being wrong, their entire life is called into question, something interesting happens. Back in the 50s, a study was done on a doomsday cult in Chicago. The cult predicted that a massive flood would destroy the West Coast of the United States and that flying saucers would rescue the chosen believers before the cataclysm struck. Obviously, it never happened. Strangely, after the prophecy failed, rather than admitting they'd been duped, folks in the cult doubled down on their beliefs, assuming that their prayers had been answered by God and that he decided to spare the planet on their behalf.
Applying similar logic, Boomers, rather than admitting that the system they'd bought into wasn't really looking out for their best interest, doubled down, intensifying their rhetoric against lazy and entitled Millennials. Inasmuch as all invectives are projections of a speaker's insecurities, Boomers and Gen Xers are really saying one of two things when they blindly lash out. One: they made the wrong choices when they were young, and feel they missed The Road Not Taken. Two: they feel that they didn't work hard enough to inoculate themselves from the effects of our failing economy. The former is sad. The latter is terrifying.
Millennials don't care about dressing up for work.
Another way to look at this issue is via the lens of corporate America. As pointed out by Tucker Max**, the corporate formula is simple: sacrifice youth in exchange for status and financial security. The problem is, status is only worthwhile if people believe in the power structures it's attached to. Money certainly still commands respect, but middle managers aren't exactly rolling in it. With this in mind, it's easy to look at Boomers' Millennial fixation as an obsession with preserving the status quo (pun intended). In their world, being respected can feel like the end all be all of adult life. If Millennials don't buy into the existing systems of power, then the prestige Boomers have strived for is meaningless.
There's always a disconnect between generations, but the way in which Millennials have been used as scapegoats for economic issues is beyond the pale. Many of us own homes and have families already. Some of us are prominent business owners. If 1996 is a strict cutoff, then this coming school year will be the last college graduating class primarily comprised of Millennials. We're adults, in every sense of the word. Still, the stereotypes attached to Millennials have persisted, and while I've discussed the hows and whys, I haven't directly addressed the crimes my generation is accused of.
Here's a shortlist of refutations:
-Millennials are not as addicted to their phones as Boomers and Gen Xers.
-Millennials do not want participation trophies. Those were invented to coddle and reassure parents that their children are special. I have a box of them at home. They mean nothing to me.
-Every generation since the Boomers has been called "The Me Generation."
-Millennials aren't stupid. They're the most educated generation ever. Full stop.
-Millennials aren't lazy or entitled. We just won't work for less than what we're worth. Anyone who thinks refusing to work for free is an entitlement, has no spine.
-Our debt is not due to a lack of fiscal responsibility. Boomers destroyed the economy, and we're shouldering 1.2 trillion dollars in student debt because we were taught that higher education is a prerequisite to success in this country.
* This is because discourse is predicated on the idea that each side of an argument has merit. A potential side effect of debate, however, is the creation of a neutral center, a nebulous region in which values from either end of the discussion are combined and redefined ad infinitum. Often, the center is painted as the domain of the rational thinker, the one who can clearly see both sides of an argument. The problem is, in a debate with, say, a neo-nazi, the center must by this definition, at least partially endorse certain ethno-fascist ideals. In this way, the creation of an ideological middle ground always benefits the more radical opinion.
**Listen...I know. I didn't see the author until after I read the article, but it makes some pretty good points. Yes, his books are still bad.
Matt Clibanoff is a writer and editor based in New York City who covers music, politics, sports and pop culture. His editorial work can be found in Inked Magazine, Popdust, The Liberty Project, and All Things Go. His fiction has been published in Forth Magazine. -- Find Matt at his website and on Twitter: @mattclibanoff