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Federal study: Home flipping a factor in foreclosure crisis

A new federal report sheds new light on the cause of the housing bubble that led to the massive wave of mortgage foreclosures in the nation. Cincinnati foreclosure and bankruptcy lawyers know that the housing crisis has affected consumers, even those who never owned a home, as the overall economy and job market to a hit in the wake of the financial collapse.

The Federal Reserve Bank of New York says real estate investors played a bigger role than originally thought in the housing bubble that led to record foreclosures when the bubble burst. Over the last decade, the housing market saw sharp gains in home prices and a tremendous fall that real estate investors played a role in creating.

The researchers looked at previously overlooked data, which the economic researchers characterize as an "undocumented" dimension of the financial crisis that gripped the nation. The study suggests that more than a third of all home mortgages that were granted in 2006 across the nation were given to investors who already owned at least one home.

Moreover, during the period between 2000 and 2006, the researchers say people who owned three or more properties were the fastest growing segment of buyers in the real estate market. "This may have allowed the bubble to inflate further, which caused millions of owner-occupants to pay more if they wanted to buy a home for their family," according to the Federal Reserve study.

The difficulties grew enormously when home values began to decline. The real estate investors owning multiple homes were more likely to walk away from the mortgages. The investors accounted for more than 25 percent of the mortgages that became seriously delinquent, leading to not only a large number of foreclosures, but a sharp decline in overall home market values, according to the federal study. The ripple effect sent a wave into the job market, especially in the construction industry, where many workers found themselves unemployed.

Source: AP via The Boston Globe, "Federal report: Home flipping drove housing bubble," Christina Silva, Dec. 12, 2011

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