In Thomas Wood’s book “Meltdown” I read that large increases in foreclosures occured at the same time in both subprime and prime loans, and that between 2006-2007 the foreclosure rate was much higher for prime loans. Where can I find references and statistics showing that?
Isn’t that a bit like deciding what’s true and then trying to find evidence for it? I’ll be surprised, frankly, if sub-prime wasn’t the problem.
No…
Stab Liebowitz published a paper in 2008 titled “Anatomy of a Train Wreck, Causes of the Mortgage Meltdown”. This paper analysed the foreclosure statistics from the Morgage Banker Association.
http://www.independent.org/pdf/policy_reports/2008-10-03-trainwreck.pdf
Liebowitz definitavely shows that the percent of increase of the defaults started in prime and subprime mortgages began at the same time (3Q 2006, see page 20). One can only conclude from this that the housing bubble was not caused by subprime lending.
Since subprime lending was not the cause of the crises, one can further infer that preditory practices were also not the cause of the crises. If it was, you would have to believe that unscrupulous lenders were able to equally sway both the subprime and the sophisticated prime borrowers.
The evidence suggests that the housing bubble was caused by the government policies of relaxing the underwriting standards. Acts such as the CRA provided an added incentive along with Fannie Mae and Freddie Mac. The 1992 Federal Housing Enterprises Financial Safety and Soundness Act (FHEFSSA) mandated that the GSEs increase their acquisition of primary-market loans made to lower income borrowers . . . Spurred in part by the FHEFSSA mandate, Fannie Mae announced a trillion-dollar commitment (page 7). Although the original mortgage innovations were rationalized for low and middle income buyers, higher income borrowers also used these relaxed lending standards.