Friday, April 26, 2013

Government failure: housing bubbles and subprime lending

Down Payment Rules Are at Heart of Mortgage Debate - NYT

"And the subprime debacle has only distorted the debate, say some analysts. “The problem with this conversation is that it’s like discussing the future of shipbuilding from the deck of the Titanic,” said Roberto G. Quercia, director of the Center for Community Capital at the University of North Carolina at Chapel Hill. “There’s a lack of perspective.”

To underscore his point, Mr. Quercia studied mortgages in a special program for low-income borrowers, typically those with minimal down payments. From 1998 through the end of last year, 5.5 percent of the mortgages ended up in foreclosure, he found. Subprime mortgages made during the last housing boom, regardless of down payment size, had far higher foreclosure rates, roughly 25 percent."



Let’s not repeat the same mistakes that led to the housing bubble -AEI

"I‘ll call those 2,500 borrowers and raise 3.1 million families. Since 1975, one in eight of the 25 million families getting an FHA insured loan suffered a foreclosure from their 30-year, fixed-rate mortgages with a small down payment. The dashed American dreams of these families trumps the 2,500 in the UNC study. America’s homeowners have already experienced the horrific impact of the government’s successful effort to loosen underwriting standards that drove the boom that went bust. Let’s not repeat the same mistake."

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