For a Heritage Foundation volume. In my chapter, I write,
One obvious improvement would be to eliminate all government subsidies for mortgages to non-owner-occupants. It seems likely that this policy change alone could have greatly reduced the severity of the financial crisis or prevented it altogether.
Wow.
You know that disgusting feeling you get when you drive by an accident and just cannot help looking?
That’s the feeling I got when I read this chapter.
Ideological drivel looking for correlations.
“Money talks. It says the only way to measure the quality of mortgage underwriting is to track loan performance delinquency and default rates, loss severity in comparison with the rest of the mortgage market. Otherwise, any analysis of the government-sponsored enterprises’ role in housing finance is meaningless.
And yet, critics demanding GSE reform ignore the topic altogether. Search through any book or article promoting the thesis that the GSEs helped cause the mortgage crisis for a passage comparing GSE loan performance with the rest of the market. Almost certainly, you will come up empty-handed.
There is no data anywhere to cast doubt on the vastly superior loan performance of the GSEs. Year after year, decade after decade, before, during and after the housing crash, GSE loan performance has consistently been two-to-six times better than that of any other segment of the market. The numbers are irrefutable, and they show that the entire case against GSE underwriting standards, and their role in the financial crisis, is based on social stereotyping, smoke and mirrors, and little else. ”
https://www.americanbanker.com/opinion/gse-critics-ignore-loan-performance
This is more or less true; it is difficult to argue that the GSEs were a major cause of the housing crisis.
That said, defenders of the GSEs are (a la Peter Schiller and Paul Krugman) committed to their own myth: the supposed collapse of lending standards and rush to give subprime mortgages to people who couldn’t afford them; usually from economist who are wedded to the concept that every crisis is the result of ‘irrational exuberance’ and requires ever greater regulation.
First time/low income home buyers started *declining* in absolute numbers before even 2005. FICO scores remained stable and delinquency rates declined throughout most of the ‘boom.’ The problem wasn’t lending standards: it was housing supply constraints driving up prices.
So the GSEs (and FDIC, and CRA) all did probably exacerbate the crisis simply by subsidizing demand for housing without any corresponding supply increase, which invites speculation. Admittedly they (and the private banks as well) were more following on the heals of rising prices, not causing them.
The relative quality of GSE loans is irrelevant to this point. If the government subsidizes loans to rich people to go to Ivy League schools, do you think it doesn’t drive up the cost of lower tier education? Of course it does, and in doing so leads more poorer students to take out worse loans because now they have to compete for those loans with kids who otherwise would have gone to an Ivy League school if the costs weren’t driven up by government subsidies.
You should stay away from subjects that are total mysteries to you. Almost nothing you say comes close to actual fact, combined with creating straw men for people you argue against.
I will give you the entire fraud in a nutshell. Investment banks created a huge increase in AAA buyers by changing basic underwriting and paying off ratings agencies to ignore facts.
That’s it. That is all it was.
No. You should take your own advice. Look at the data on average down payments and mortgage generation for low income buyers. It conpletely contradicts your position.
Compare housing prices in cities with restrictive housing policies (e.g. San Francisco) with those in cities with less restrictive policies (e.g. Dallas); the extent of the boom and bust in prices correlates perfectly with supply constraints, and rent an home prices skyrocket before the sum of mortgage loans did; what’s more, its clear the increase in total outstanding mortgage loan money was due almost entirely to increased prices of existing housing stock, not to increased mortgage generation.
Your position is based on anecdote, mine on data. It’s as simple as that.
Really?
You mean like Phoenix? The entire state of Florida? Las Vegas?
You got couple of cherries there left lying around.
And the bubble had absolutely nothing whatsoever to do with low income buyers.
Show me the data you claim means something, cause I sure have not seen any.
I’ll give you a hint. When you talk about the housing bubble and mention the CRA in any way, shape or form, there is an obvious lack of data. Lending under the CRA reached its max in the early 90s, and declined steadily the next 15 years right through the bubble.
But that cherry you don’t want to pick.
http://2.bp.blogspot.com/-brC-IDdo-dg/VklFw8pFVOI/AAAAAAAAFac/3CBqsIiVHDA/s1600/2015-11-15-12.PNG
There’s housing prices by city.
http://2.bp.blogspot.com/-brC-IDdo-dg/VklFw8pFVOI/AAAAAAAAFac/3CBqsIiVHDA/s1600/2015-11-15-12.PNG
A decent post on mortages, with graphs
http://1.bp.blogspot.com/-BT08npn7oGM/VqlH6TgcJkI/AAAAAAAAGDA/jNDVecVBP5k/s1600/2016-1-27-1.PNG
Curiously, total amount of mortgage credit continued to increase even as home ownership rates were declining, almost as if housing getting more expensive was the cause, not the supposed rabid increase in mortgage origination.
https://3.bp.blogspot.com/-cDCboBMF0Es/VrpSOA3CeoI/AAAAAAAAGIc/SbXfJKo8tYg/s1600/2016-2-9-5.PNG
Look aat mortgage affordability, housing starts, and then look at cities with the worst booms and busts:
http://www.economist.com/blogs/graphicdetail/2016/08/daily-chart-20
https://4.bp.blogspot.com/-fkxjPfBDtFo/WFYU56Q_POI/AAAAAAAAGuk/6hABzZTxCVQT7Lue0DTO0dqGwOR_zxCnwCLcB/s1600/2016-8-15-4.PNG
Generally, cities with limited housing starts experiences worse booms/busts and less affordable mortages than cities with more housing starts per capita during the ‘boom.’
Here’s a paper by Ed Glaeser (you know, the most esteemed urban economist in the country) explaining that cheap credit cannot explain the housing boom:
http://www.nber.org/papers/w16230.pdf
Do you understand that if your theory is that restrictions on building caused the housing bubble it to make any sense, that the housing bubble only occurred in those areas of restrictive building?
I certainly will not say that SF and SoCal were not areas where the bubble occurred, but their zoning had nothing to do with the bubble.
To make sense of your argument then there should have been no bubble outside of the areas you speak.
Wrong.
“hese days, however, many of the worst hit zip codes are communities that were built in the past decade or two in and around once-rapidly growing metro areas like Phoenix, San Bernardino, Calif. and Las Vegas, now the poster child of the foreclosure mess.
In fact, Las Vegas claims all five of the top five hardest hit zip codes. The number one spot goes to a neighborhood in North Las Vegas (in zip code of 89031) that recorded 2,469 foreclosure filings last year, according to RealtyTrac.
In California, the towns of Lancaster (93535), in the central part of the state, and Fontana (92336), near San Bernardino, claimed sixth and seventh place — the highest finishers for any zip codes outside of Nevada.
As far as regions go, the South claimed the second highest number of hardest hit zips with 14. Georgia claimed 12 of those neighborhoods, including one in Atlanta that took 10th place. Interestingly, not a single Northeastern zip code made RealtyTrac’s top 100 list. ”
http://money.cnn.com/2012/01/23/real_estate/foreclosure_zip_codes/
If we could have gone back in time and stopped these subsidies from being established in the first place, this is a reasonable assertion.
But now, such an action would invoke the same problems we had a decade ago; a rapid drop in the valuation of non-owner occupied properties.
That is the problem with fixing the mistakes of the past with housing and tax policy. Current tax policies are baked into valuations, and the value of real estate is a primary anchor of the economy. Gradual sunsetting of policies don’t work because valuations depend on multi-decade financing schemes.
Fixing such things will be very, very hard.
Lifetime subsidy limits would also be good, and can be more easily phased in:
10 times the prior year’s median taxpayer wage (~$50k, so $500k), which slowly goes up with median wage.
Also, changing from interest deduction to house payment tax credit of 30% (year max of $50k) would make it more fair for middle class and lower middle class. A chief goal is to increase the equity wealth of home owners, and reduce their incentives for borrowing against that equity. This will also reduce “wealth inequality” in the US.