A Housing Collapse Could Wound the Banks

If the bubble of overvalued home prices bursts, the banking sector could be the next to suffer

It has been a tough year for banks, what with profits being hit by corporate loan defaults, junk-bond losses, and restructuring charges. The next knock may come from the one area of the economy that has long seemed like a safe haven: housing. Thanks to a hyperefficient home loan industry, the amount of outstanding home mortgage debt has skyrocketed more than 40% in the past five years, to $5.28 trillion, according to the Federal Reserve. Not only is homeownership at record levels, but consumers have also opted to refinance into larger and larger loans.

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