Posts Tagged ‘subprime’

Subprime’s sucking sound

Via Mark Thoma, Federal Reserve Bank of Cleveland economist Yuliya Demyanyk gives us “Ten Myths About the Subprime Crisis.”

Myth 2: Subprime mortgages promoted homeownership

The availability of subprime mortgages in the United States did not facilitate increased homeownership. Between 2000 and 2006, approximately one million borrowers took subprime mortgages to finance the purchase of their first home. These subprime loans did contribute to an increased level of homeownership in the country—at the time of mortgage origination. Unfortunately, many homebuyers with subprime loans defaulted within a couple of years of origination. The number of such defaults outweighs the number of first-time homebuyers with subprime mortgages.

Given that there were more defaults among all (not just first-time) homebuyers with subprime loans than there were first-time homebuyers with subprime loans, it is impossible to conclude that subprime mortgages promoted homeownership.

The Center for Responsible Lending offered a rougher version of this analysis a couple of years ago, noting that subprime loans led to more foreclosures than long-term homeowners. Here are their numbers, which cover 1998-2006:

15,175,609 subprime loans originated

1,435,472 of these went to first-time homebuyers

2,366,90110 projected foreclosures, based on an anticipated rate of 15.6%

(931,429) net loss of homeowners.

So please, no more of this “don’t forget that subprime helped more people become homeowners” crap – it didn’t.

Wednesday, July 22nd, 2009 | Tags: ,
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Denial

The new Pew Hispanic Center report on minority homeownership shows (with the help of the indispensable Home Mortgage Disclosure Act) what black and Latino buyers are now up against in the post-subprime era: home purchase mortgage application denial rates of 26 (Latino) and 30 (black) percent, compared with 12 percent for white borrowers. And that was in 2007; the 2008 and 2009 numbers stand to be much worse. Right now black homeownership stands at 49 percent and Latino 47, compared with 75 percent for whites.

So, what happens now? What’s the successor to subprime…and if there isn’t one, what will aspiring homebuyers do when they’re rejected for mortgages? The common answer right now is “rent,” and I’m all in favor of that, but that means accepting a future of two nations, owner and renter, divided not just by ownership, but by race. That’s nothing new, but follows years of intensive efforts by Fannie Mae, the Ford Foundation, HUD, the lending industry and many many others to narrow the gap — a gap that’s now threatening to widen again.

Wednesday, May 13th, 2009 | Tags: , ,
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