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"The recent sharp increase in mortgage defaults is significantly amplified in subprime zip codes, or zip codes with a disproportionately large share of subprime borrowers as of 1996. Prior to the default crisis, these subprime zip codes experience an unprecedented relative growth in mortgage credit. The expansion in mortgage credit from 2002 to 2005 to subprime zip codes occurs despite sharply declining relative (and in some cases absolute) income growth in these neighborhoods. In fact, 2002 to 2005 is the only period in the last eighteen years when income and mortgage credit growth are negatively correlated. We show that the expansion in mortgage credit to subprime zip codes and its dissociation from income growth is closely correlated with the increase in securitization of subprime mortgages." SSRN-The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis by Atif Mian, Amir Sufi
More from the above:
"The sharp rise in U.S. mortgage default rates has led to the most severe financial crisis since the Great Depression. A salient feature of the mortgage default crisis is that it is concentrated in subprime zip codes throughout the entire country. A comparison of subprime and prime zip codes, which are defined to be zip codes in the highest and lowest quartile based on the fraction of borrowers with a credit score under 660 as of 1996, reveals that subprime zip codes experience an increase in default rates since 2006 that is more than three times as large as prime zip codes in the same metropolitan area."
What's the other other "low income" program you were referring to?
CRA and AMTPA was the beginning of the fire, but incentives provided by the feds to encourage Fannie Mae to increase subprime loans was added fuel. Bundling of the mortgages into securites products and speculation over real estate fanned the flames.
These policies passed over the watch of Carter, Reagan, Bush 1 and 2, as well as Clinton.
Despite the extreme chaos caused by the federal government encouraging the subprime crisis, I am suprised by those who seem to have no problem with it happening again.
Despite the extreme chaos caused by the federal government encouraging the subprime crisis, I am suprised by those who seem to have no problem with it happening again.
Housing was a main source of "credit" for many people via HELOC's.
That in turn drove the economy as real wages were stagnant/falling.
The only way out is to drive another bubble and the government is trying very hard to kickstart the RE market again.
The interesting thing is that despite the terrible consequences of the low income mortage program and the chaos that resulted, libs are just fine with starting it up again, which will result in calamity again. Can we learn just once from past lessons?
Who said anything about minorities? I was talking about low income housing mortgages. The statistics I have read said the majority were to caucasians. How does race come into this?
Pad thinks that anyone who talks about low income, is attacking minorities. Facts dont ever enter his thought process that there are more low income whites than there are minorities.
Yes everbody was in on it. The lender, the real estate agent, the mortgage company, the appraiser, the mortgage bundler, the stock broker who sold them, the bond rating companies as well.
NONE OF THIS HAD TO DO WITH CRA LENDING.
IN FACT CRA, LENDERS WERE LESS EFFECTED.
STOP TRYING TO SINGLE OUT MINORITIES OR THOSE WHO PROMOTE LENDING TO MINORITES.
Property Standards and Minimum Loan Amounts:
These standards should be checked for arbitrary rules as to
the age, location, condition, or size of the property. Such
standards could negatively affect applicants who wish to purchase
two– to four–family homes, older properties, or homes
in less expensive areas.
Obligation Ratios: Special consideration could be
given to applicants with relatively high obligation ratios who
have demonstrated an ability to cover high housing expenses
in the past. Many lower–income households are accustomed
to allocating a large percentage of their income toward rent. While it is
important to ensure that the borrower is not assuming an unreasonable
level of debt, it should be noted that the secondary market is willing to
consider ratios above the standard 28/36.
Down Payment and Closing Costs: Accumulating enough savings
to cover the various costs associated with a mortgage loan is often
a significant barrier to homeownership by lower–income applicants.
Lenders may wish to allow gifts, grants, or loans from relatives, nonprofit
organizations, or municipal agencies to cover part of these costs. Cash–
on–hand could also be an acceptable means of payment if borrowers
can document its source and demonstrate that they normally pay their
bills in cash.
Credit History:Policies regarding applicants with no credit history
or problem credit history should be reviewed. Lack of credit history should
not be seen as a negative factor. Certain cultures encourage people to “pay as you go” and avoid debt. Willingness to pay debt promptly can be
determined through review of utility, rent, telephone, insurance, and
medical bill payments. In reviewing past credit problems, lenders should
be willing to consider extenuating circumstances. For lower–income
applicants in particular, unforeseen expenses can have a disproportionate
effect on an otherwise positive credit record. In these instances, paying off past bad debts or establishing a regular repayment schedule with creditors may demonstrate a willingness and ability to resolve debts.
Successful participation in credit counseling or buyer education
programs is another way that applicants can demonstrate an ability to
manage their debts responsibly. (See the section on Buyer Education.)
Property Appraisal/Neighborhood Analysis: Terms like “desirable
area,” “homogeneous neighborhood,” and “remaining economic life” are
highly subjective and allow room for racial bias and bias against urban
areas. The same holds true when lenders evaluate properties based on
their market appeal or compatibility with the rest of the neighborhood.
(See the section on Third Party Involvement in the Loan Process.)
It should be noted that the Federal Home Loan Mortgage Corporation
(Freddie Mac) has stated that neighborhoods undergoing revitalization
should be assessed on their potential as well as their existing condition.
Also, the Federal National Mortgage Association (Fannie Mae) will
accept block–by–block underwriting analyses in urban neighborhoods
being rehabilitated.
Employment History: It is important to distinguish between
length of employment and employment stability. Many lower–income
people work in sectors of the economy where job changes are frequent.
Lenders should focus on the applicant’s ability to maintain or increase his
or her income level, and not solely on the length of stay in a particular job.
Sources of Income: In addition to primary employment income,
Fannie Mae and Freddie Mac will accept the following as valid income
sources: overtime and part–time work, second jobs (including seasonal
work), retirement and Social Security income, alimony, child support,
Veterans Administration (VA) benefits, welfare payments, and unemployment
benefits.
The interesting thing is that despite the terrible consequences of the low income mortage program and the chaos that resulted, libs are just fine with starting it up again, which will result in calamity again. Can we learn just once from past lessons?
More interesting perhaps is the fact that despite there being plenty of actual information available on the internet, many people continue to believe mush. The CRA loans extended into low- and moderate-income communities primarily between 1995 and 2000 performed as well as or better than industry averages. Almost half of all CRA borrowers qualified at prime terms. Nearly all the rest qualified at Alt-A. CRA loans were about half as likely to include high-cost terms as were loans extended into the same communities by non-CRA lenders. Meanwhile, one of the most stable and reliable segments of the mortgage market through the default crisis has been ITIN mortgages. There are many tens of thouands of such mortages, and they have experienced default rates 3-5 percentage points below the average of all other loans. Nearly all ITIN mortgages are held by illegal immigrants.
The loans that ultimately defaulted and thereby led to the credit crisis were typically written between 2002 and 2006 into low-income, minority, and other communities by unregulated private brokers (such as Countrywide, Ameriquest, or New Century Financial) who deliberately wrote high-profit, high-cost terms into those loans, then sold the notes off for securitization through the Wall Street investment banks who were making a fortune off processing bundles of such loans and derivatives thereof into very hot secondary mortage markets. That in a nutshell is where the crisis came from.
The idea that liberals or anyone else has ever supported lending to people who could not repay their loans, and the idea that low-income people should not receive credit because they cannot afford to repay it, are both garbage.
More interesting perhaps is the fact that despite there being plenty of actual information available on the internet, many people continue to believe mush. The CRA loans extended into low- and moderate-income communities primarily between 1995 and 2000 performed as well as or better than industry averages. Almost half of all CRA borrowers qualified at prime terms. Nearly all the rest qualified at Alt-A. CRA loans were about half as likely to include high-cost terms as were loans extended into the same communities by non-CRA lenders. Meanwhile, one of the most stable and reliable segments of the mortgage market through the default crisis has been ITIN mortgages. There are many tens of thouands of such mortages, and they have experienced default rates 3-5 percentage points below the average of all other loans. Nearly all ITIN mortgages are held by illegal immigrants.
Several posts back I posted this:
"Predatory lending..not Carter's program did us in."
Several posts back I posted this:
"Predatory lending..not Carter's program did us in."
Yes, and I agreed with most of that post, especially re the role of low interest rates. These were extended by Greenspan long after 9/11 was any further excuse primarily because the Bushie tax cuts for the rich failed to generate any signficant new economic activity. Not only did those long-term low rates serve to drive housing prices up, they made yields on mortgage-backed securities suddenly start to look rather attractive to institutional investors. It was their emerging and then ballooning demand that the Wall Street investment banks jumped in to service, eventually putting pressure on private brokers to keep the flow of original paper coming even if they had to compromise traditional underwriting standards to do it. This is a pretty good synopsis of what that led to...
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If you have a half hour or so...
