“What they are saying is that in zip codes where lots of folks were turned down in 1996, you see lenders approving many more loans, and at lower risk spreads in 2001 through 2005, fueling the home price bubble. The lower risk spreads tells me that this was not predatory lending, but the opposite…It sounds like what they are talking [about] is that lenders charged exorbitant interest rates to hapless borrowers. In fact, lenders were guilty of charging borrowers too little for loans, as well as approving too many unqualified borrowers. If you think that alert regulators would have cracked down on lenders for providing too many home ownership opportunities to Americans, especially minorities, then you believe in a different political environment than what I remember.” — Arnold Kling, explaining a recent study by two University Of Chicago economists on the housing bubble
Generally, I agree. I don’t think more regulation would have been particularly effective or desirable, and I don’t advocate the tightening of lending regulations.
In addition, I don’t think the government should be too quick to take steps to save either the lenders that lent too freely, or to save the borrowers that borrowed beyond their means. Forced to choose between the two, I suppose I would rather see the government step in to help folks losing their homes, than stock-holders losing their investments. Unfortunately, I think the reverse is more likely.
hey HP, i just noticed you linked to my site. gracias. for some reason, I have started to make friends with republicans, go figure. take care.
LaurenceB,
What did the GOP do to lose you? You come across as too economically knowledgeable to be a Democrat…was it the war? Foreign policy in general?
Hey tin,
Weird - I’ve been linking to your sight for years now. I don’t base my friendship on political views, in fact, almost all of my friends are Democrats…liberals in fact.
cool, i haven’t worked on my site at all in a long while, when i do, i be sure to add your site.
peace.
I’m having a bit of trouble understanding this whole mortgage thing. I mean, I do understand the nature of the situation at hand, but about a month ago financial expert Suze Orman was on the Oprah show and stated that part of the reason lenders were so eager to approve home loans to people who normally would not qualify for such loans was because George W. Bush proclaimed that he wanted more minorities to become homeowners in order to have more Americans ascend to the middle class.
I’ve never heard of this bit of information and after exhaustive searches of both Oprah’s and Orman’s web sites for information about this I have found nothing.
Did Bush actually say this? Was I hallucinating when I saw and heard Suze say this on Oprah? Did Bush’s alleged proclamation come with some kind of bailout clause for lenders whose lendees defaulted on these mortgages? Could this be why Bear Sterns is getting some kind of government bailout?
I haven’t bothered to contact either Oprah or Orman, because I figure if they didn’t bother to elaborate on this crucial nugget of detail on their respective web sites, I’d probably receive nothing more than a form letter response. I’ve also Googled this subject and haven’t come up with any results that could answer my question.
I figured if anyone knew the real deal, it would be an economics guru like HP.
To keep up with the above discussion, I believe predatory borrowing-an issue I’ve only seen addressed on this particular blog-is the real issue here. I believe a lot of these borrowers knew they couldn’t keep up with the long-term stipulations of the mortgage but couldn’t resist the low interest rate or the low down payment offers. I think both parties-the lenders and the borrowers-are equally guilty and neither should receive a government bailout. With the current economic stimulus package already in full swing, this country cannot afford to borrow anymore from the Chinese than we already have with this ridiculous and expensive war in Iraq, the cost-prohibitive War on Drugs, farm subsidies and numerous other pieces of pork legislation.
As a libertarian, I don’t believe in more regulations regarding mortgage lending. I think if we refuse to bail out either party, they will figure out that they are responsible for their own financial decisions, in the future, lenders will be more careful when reviewing loan applications and tighten their own lending policies and borrowers will be more careful to be sure they are financially secure enough for a responsibility as heavy as homeownership. I think the real problem is that both parties had a feeling that the government was going to cover their asses if something went wrong down the road.