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"Crucial new mortgage study: "Liar's Loan?""

25 Comments -

1 – 25 of 25
Anonymous Anonymous said...

It takes two to lie - one to lie, and one to listen.

9/3/09, 7:52 PM

OpenID ironrailsironweights said...

Interesting ethnic mix of authors ... Wei Jiang is of course Chinese, Ashlyn Aiko Nelson looks Hapa from her picture on the Stanford site, and Edward Vytlacil is probably of Czech descent and looks quite European.

Peter

9/3/09, 7:59 PM

Blogger agnostic said...

It sounds like the "liar loans" were mostly taken by middle/upper class speculators, not poor newcomers.

High loan size but low loan-to-value ratio means they were taking out a boatload of money to acquire an even more fantastically pricey house -- one that they'd show on Million Dollar Listing.

First-time owners and owner-occupied houses were *less* likely to take a liar loan -- because speculators already own a home, and they do not plan on living in the new one, just flipping it.

High-income and credit scores underline the fact that the liar loan takers were decently well off.

The only non-speculator result is that Hispanics were over-represented among liar loans.

So you took out a liar loan mostly if you were a middle/upper class speculator, or (in fewer cases) if you were an illegal Hispanic immigrant. The former effect must have been greater, since otherwise the characteristics of illegal immigrants would've skewed the results on loan size, LTV, credit scores, income, first-time owner, owner-occupied, etc. in the opposite direction of what was found.

9/3/09, 9:23 PM

Anonymous Anonymous said...

Which lender: American Home Mortgage (since acq'd in BK by Wilber Ross), IndyMac, or Impac? Just asking....

9/3/09, 9:23 PM

Anonymous Anonymous said...

OT:

White guy on bike hit in face with pipe by group of six blacks. Writes SWPL story about it.

http://www.chicagomag.com/Chicago-Magazine/September-2009/A-Mugging-on-Lake-Street/index.php?cparticle=1&siarticle=0#artanc

9/3/09, 9:40 PM

Anonymous Anonymous said...

Paging Mr. Ritholtz...

Mr Ritholtz, please report to the principal's office...

9/4/09, 1:19 AM

Anonymous christie said...

OT - the latest City Journal has an article titled 'Istanbul’s Crime Conundrum' by Claire Berlinski.

The synopsis is:
The Turkish metropolis is one of the world’s safest big cities—but burglaries are booming. Why?

The article hasn't yet been released.
Steve, you were in Turkey recently - any ideas?

9/4/09, 2:05 AM

Anonymous dearieme said...

"It would be very interesting to track delinquency rates by the race of the broker." You are a very naughty boy.

9/4/09, 2:10 AM

Anonymous Anonymous said...

Talking of liars (but off topic) here is one for Steve's already bulging fake hate crimes file.

9/4/09, 2:46 AM

Anonymous eh said...

...allowing the bank to offload risk.

No mention of the rating agencies? I think one reason they were able to do this is that later it turned out that a lot of the paper was grossly mis-rated.

9/4/09, 4:29 AM

Anonymous Pat Shuff said...

"The findings provide evidence that the bank pursued a growth strategy which relied on penetrating marginal borrowers through the broker channel."

The naysayer's argument (Ritholtz)
is that housing policies are not to blame because the bad lending was through these independent brokers and not CRA-compliant banks. They miss the seamless linkage as deftly and repeatedly shown by Stevil.

The housing advocacy groups cut themselves in for 1% of the funding rake through low-income housing programs by holding hostage the acquisition/growth strategies of now bankrupt major banks until they achieved CRA-like compliance which these groups were happy to assist by way of the fee,
their bread-and-butter. Ironic, they sustain their lifestyle and growth off the now-foreclosed backs of those their revenues
depend upon and are ultimately derived through higher mortage costs. Let us prey.

~~~~~~~~~~~~~~~~~~~~~~~~~

The Clinton administration has turned the Community Reinvestment Act, a once-obscure and lightly enforced banking regulation law, into one of the most powerful mandates shaping American cities—and, as Senate Banking Committee chairman Phil Gramm memorably put it, a vast extortion scheme against the nation's banks. Under its provisions, U.S. banks have committed nearly $1 trillion for inner-city and low-income mortgages and real estate development projects, most of it funneled through a nationwide network of left-wing community groups, intent, in some cases, on teaching their low-income clients that the financial system is their enemy and, implicitly, that government, rather than their own striving, is the key to their well-being.

The Trillion-Dollar Bank Shakedown That Bodes Ill for Cities

Winter 2000

http://tinyurl.com/5wdbpr

9/4/09, 7:11 AM

Anonymous Chief Seattle said...

"A plausible explanation is that the expansion of the secondary mortgage market and the ease of loan securitization weakened the bank’s incentive to screen borrowers by allowing the bank to offload risk."

A very plausible explanation. These brokers and mortgage companies were lending other people's money. They were only personally on the hook for some small percentage that hadn't yet been sold to Wall Street, plus some potential penalties if loans didn't perform during the early stages. The minority lending is just one part of this - albeit an important part. But you can bet that banks lending their own money would have pushed back much harder against any government pressure to increase low-standards lending.

The reliance by Wall Street on credit scores was another key error. Credit scores are very carefully calculated to measure risk on relatively low amounts of consumer debt. Like a car loan or a credit card. But credit scores are probably only loosely correlated with mortgage repayment, especially in any sort of stressed conditions - large drops in home values or high unemployment - exactly like we are seeing right now.

9/4/09, 11:35 AM

Blogger albertosaurus said...

This morning as I read your column Thomas Sowell is on the radio making most of these same points.

All this is very hopefull. When the public actually comprehend a causal connection, change is possible.

I'm reminded of La Traviata. The opera came out shortly after the play and the novel. All of them were long before anyone suspected tha TB was infectious. Therefore Armand (Alfredo) gives the titular tubercular a whole bunch of deep sloppy kisses. No such scene could occur today because the public understands and fears microbes.

All of these politicians and social engineers never suspected that their good intentions might make things worse. Now that the consequences of those intentions are becoming understood - in no small part from your work - we can hope that in the future people will react reflexively to lowering credit standards just as they react reflexively to having a TB victim cough on them.

9/4/09, 12:21 PM

Anonymous Anonymous said...

Interesting. I see the biggest issue here as being that this irresponsibile lending would not have had nearly the devestating effect on the U.S. economy that it did if the loans hadn't been repackaged, leveraged and sold. It's pretty clear that Blacks and Hispanics had higher subprime defaults rates than Whites and Asians. But even if their subprime default rates were lower, we'd still be in a mess, because these loans were allowed to be repackaged and sold. I suppose that's where a lack of government oversight and the complicity of the ratings agencies come in. As well, did a blindly uncritical view of diversity encourage the government to turn a blind eye in the name of the greater good of our Great Society? Interesting article here about the role that plain old government greed played: "Thanks to a complicit Congress, the reins were systematically loosened on the looters of the financial industry. And they're still at it looking for new plunder."
http://articles.moneycentral.msn.com/Investing/JubaksJournal/fluke-credit-crisis-was-a-heist.aspx

9/4/09, 1:10 PM

Anonymous Jonathan Silber said...

The authors of the paper speculate, toward the of the excerpt, whether blacks and Hispanics "possessed the requisite experience and knowledge to continue making their mortgage payments in full and on time."

That experience and knowledge is within the reach of any borrower: it can be obtained by paying a rent in full and on time.

9/4/09, 7:18 PM

Blogger Steve Sailer said...

My guess is that in the first half of 2004, a lot of what this anonymous firm, which tended to avoid subprime loans and focused on Alt-A, was doing was lending money to home improvement contractors and other people who were making a bundle in untaxed cash payments off the Housing Bubble. The original business model was aimed at people who were lying to the IRS about their incomes, but telling the truth on their mortgage applications.

So, when these people proved fairly reliable at paying back, the firm vastly increased ramped up its lending, but quickly ran out of honest tax evaders and soon was lending money to the contractors' workers and the like.

9/4/09, 8:57 PM

Blogger John Seiler said...

The government "managed" this so badly that it should ever after be banned from manipulating the banking and mortgage industries. HUD, the FDIC, Fannie Mae and Freedie Mac, even the mortgage deduction/manipulation, all should be ended. Of course, the opposite will happen.

9/4/09, 10:31 PM

Anonymous Deveaux said...

"Interesting ethnic mix of authors ... Wei Jiang is of course Chinese, Ashlyn Aiko Nelson looks Hapa from her picture on the Stanford site, and Edward Vytlacil is probably of Czech descent and looks quite European."

As a recent college grad, I can say that aside from the Hapa this mix is pretty normal in American university econ departments. Chinese and foreign Eastern European (yes, I know Czech is technically Central European, but you know what I mean) is quite standard.

9/4/09, 11:48 PM

Anonymous Anonymous said...

"I see the biggest issue here as being that this irresponsibile lending would not have had nearly the devestating effect on the U.S. economy that it did if the loans hadn't been repackaged, leveraged and sold."

No, the biggest issue is that the subprime loans were allowed in the first place, and in such large numbers. They were once illegal, somehow became legal about 30 years ago (I think Sailer made the connection with anti-usury laws being equated with anti-semitism), then were explicitly used in the service of diversity. We have the demons of diversity to thank for this mess. Wall Street greed and politician's depravity have always existed, but this time an uncritical view of diversity let them both out of their cages at the same time.

9/5/09, 5:30 AM

Anonymous Anonymous said...

Jonathan Silber: The authors of the paper speculate, toward the of the excerpt, whether blacks and Hispanics "possessed the requisite experience and knowledge to continue making their mortgage payments in full and on time."

That experience and knowledge is within the reach of any borrower: it can be obtained by paying a rent in full and on time.


I think the whole point is that these Blacks and Hispanics had never been borrowers before [and maybe never even renters] and had no earthly idea what they were getting into.

I.e. without a little pre-conditioning beforehand, it might be kinda difficult to make the Pavlovian jump from a lifetime of Section 8 freebies to a looming balloon payment on that palatial mansion in Compton.

[Then there's the whole question of how people with sub-100 IQs are supposed to understand the concept of "interest" in the first place, but I suppose maybe that's a different discussion entirely...]

9/5/09, 6:25 AM

Anonymous Anonymous said...

Ex-Dallas Cowboy and eight others indicted for 54 fraudulent loans, wonder who got bit by "predatory lenders"?

http://www.blacklegalissues.com/Article_Details.ASPX?ARTCLID=68a506d7fb&cat=Legal

9/5/09, 9:17 AM

Anonymous Anonymous said...

I think one stratgey whites need to persue is to start demanging that better statistics are kept in areas where whites are "discriminated" against. To use Sailer's analogy of the guns of Singapore, right now the only discrimination that anybody can find is white on black due to the lack of information. I would suggest that by noisily pressing for statistics showing who pays the taxes, who is mugged, etc. will not be too welcome by the new multiculturial overloards.

9/5/09, 6:08 PM

Anonymous Huxley said...

"OT: White guy on bike hit in face with pipe by group of six blacks. Writes SWPL story about it."

I do believe we have a candidate for the Amy Biehl award.

You wonder how some people survive in this world.

9/6/09, 3:55 AM

Anonymous Pat Shuff said...

Anonymous said--

Wall Street greed and politician's depravity have always existed, but this time an uncritical view of diversity let them both out of their cages at the same time.

~~~~~~~~~~~~~~~~

Wish I'd said that.

9/6/09, 5:32 AM

Anonymous Anonymous said...

...and possessed the requisite experience and knowledge to continue making their mortgage payments in full and on time.


more fodder for guilt-tripping whitey

9/6/09, 6:31 AM

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