Bob Cropf

Mortgage Crisis

In 1 on February 22, 2009 at 1:30 PM

After Freddie and Fannie were taken over last fall, followed shortly by the implosion of the entire credit market, it became “conventional wisdom” among some circles that Freddie and Fannie (and by extension the liberals in Congress who are lobbied by them) and the Community Reinvestment Act cause the financial meltdown. If the federal government has not forced lending to risky clientele (CRA) and artificially expanded the secondary mortgage market (Freddie and Fannie) none of this would have happened. Gordon covered this pretty well.

Well, Krugman, Thoma, and others have worked to debunk this and I have been reading a study using HMDA data from 2004. There was a very interesting set of tables (p. 20 & 22) that at least shoots some holes in that theory:

– %High priced (correlates with sub-prime) loans sold to GSE: 0.1%

– %High priced (correlates with sub-prime) loans sold to “Other Conduits”: 63.8%

– %High priced loans that are originated by CRA-regulated institutions: 16.1%

– %High priced loans that are originated by Independent Mortgage Bankers (e.g., Ameriquest): 83.4%

– %Low priced (correlates with prime) loans sold to GSE: 28.5%

– %Low priced (correlates with prime) loans sold to “Other Conduits”: 19.1%

– %Low priced (correlates with prime) loans originated by CRA-regulated institutions: 66.0%

– %Low priced loans that are originated by Independent Mortgage Bankers (e.g., Ameriquest): 26.2%

My understanding is that “Other Conduits” would include but is not limited to the MBS market where investment banks bought up mortgages, bundled and securitized them, then sold them. So this could be used to argue for “crowding out” – all that was left for other conduits was the sub-prime lot. OR since this market (for obvious reasons) was not very big prior to the early-2000s, it could be that this market was “artificially” expanded by the private sector due using the CHEAP money floating around.

-KC

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: