Read CRL on Disparities in Mortgage Lending

The Center for Responsible Lending's research team of Carolina Reid (who has been working tirelessly at developing data on subprime mortgages for some time now), Roberto Quercia, We Li and Debbie Grunstein Bocian has produced Lost Ground, 2011: Disparities in Mortgage Lending and Foreclosures. They argue

1) The nation is not even halfway through the foreclosure
crisis. Among mortgages made between
2004 and 2008, 6.4 percent have
ended in foreclosure, and an additional 8.3 percent are
at immediate, serious risk.

(2) Foreclosure patterns are strongly
linked with patterns of risky
lending.
The foreclosure rates are consistently
worse for borrowers who received high-risk loan products
that were aggressively marketed
before the housing crash, such as
loans with prepayment penalties,
hybrid adjustable-rate mortgages
(ARMs), and option
ARMs.
Foreclosure rates are highest in
neighborhoods where these
loanswere concentrated.

(3)The majority of people affected
by foreclosures have been
white families. However, borrowers of
color are more than twice as
likely to lose their home as
white households. These higher
rates reflect the fact that African
Americans and Latinos were
consistently more likely to receive
high-risk loan products, even
after accounting for income and
credit status.

It is really striking how African-Americans and Hispanics were steered into crappy loans, even controlling for income and credit history. Beyond all this, the web site accompanying the report has really nicely organized data on severely delinquent loans and loans in foreclosure by state, race, ethnicity and MSA.

Holmen Jenkins makes me spit out my coffee this morning.

He spins this scenario:

Take this case: Workers in a rail yard see men in suits prowling around. Rumors fly the company is being sold. One worker buys call options on his employer's stock and, because the rumors turn out to be right, is hauled up on insider-trading charges. Had the rumors been wrong, had the worker lost money, had the men in suits been federal railroad inspectors, think the feds would have filed a case?

The natural lesson we draw from this little piece of fiction: if Spencer Bachus buys a short position after he meets with Ben Bernanke, it's ok.

Sometimes you have to hold your nose

Reporter Jim Puzzanghera  of the LA Times asked me today whether I would restore conforming loan limits in certain high cost areas to their pre-October 1 729,250 level.  He wrote:

Although he'd like to see more data, Green thinks it's probably a smart move to increase the loan limits. And he agreed that the move was unlikely to hurt the FHA's finances. 

"My gut answer is, I'd probably raise it back right now," Green said. "The downside of not raising it is potentially pretty bad."

I really dislike the idea of subsidizing mortgages that only households earning more than $200,000 per year can afford.  At the same time, however, Nick Timiraos last week wrote:

Potentially more revealing is this data point from California, which has a higher share of markets affected by the declines: applications for purchase loans with balances between $625,500 and $729,750 were down by 25% from September and by 33% from one year ago. By contrast, overall purchase-loan applications in California were down by just 12% and 3%, respectively.

Housing is still very weak and many borrowers are underwater.  I wanted to see if lowering loan limits would lead the private sector to step in--I am not seeing any evidence that it is.  Beyond the data cited in the Timiraos story, flow of funds data show that private lending in other sectors of the economy remains moribund.

Maybe it is worth waiting for another month of data before the old limits are restored.  But it is not worth worsening things in the market to make a point.

Harry Frankfurt and Herman Cain

The Washington Post sends me to a Milwaukee Journal-Sentinal interview with Herman Cain on Libya.




Watching the cringe inducing answers reminded me of one of may favorite books of the last decade or so: Harry Frankfurt's On Bullshit. I am writing this from my house, and my copy of the book is in my office, so let me pull a quote from the book that is featured in a Slate review:

Both in lying and in telling the truth people are guided by their beliefs concerning the way things are. These guide them as they endeavor either to describe the world correctly or to describe it deceitfully. For this reason, telling lies does not tend to unfit a person for telling the truth in the same way that bullshitting tends to. ...The bullshitter ignores these demands altogether. He does not reject the authority of the truth, as the liar does, and oppose himself to it. He pays no attention to it at all. By virtue of this, bullshit is a greater enemy of the truth than lies are.

I am not naive. Among my favorite presidents, three--FDR, LBJ, and Bill Clinton--were excellent liars. They were not, however, bullshitters. Herman Cain is.

David Barker writes that Congress is indeed subject to insider trading laws

He points me to a paper by Donna Nagy.  I will be curious to see if a prosecutor does anything with it.

Why on earth is Congress exempt from insider trading rules?

Just asking.

Tyler Cowen channels Mr Potter

Tyler Cowen writes about how more income inequality will lead to more hard work and discipline.

Mr. Potter agrees.