Tags: mortgage | loans

Economist: Subprime Borrowers Not At Fault

By Julie Crawshaw   |   Tuesday, 07 Jul 2009 09:02 AM

Blaming the increase of foreclosures squarely on subprime mortgage lenders who presumably misled borrowers into taking out complex loans at low initial interest rates is dead wrong, said economist Stan Liebowitz.

The reason? New evidence shows 51 percent of all foreclosed homes had prime loans, not subprime.

“The important factor is whether or not the homeowner currently has or ever had an important financial stake in the house,” Liebowitz wrote in The Wall Street Journal.

“This means that most government policies being discussed to remedy woes in the housing market are misdirected,’’ he said.

“A significant reduction in foreclosures will happen when and only when housing prices stop falling and unemployment stops rising.”

Blaming other loans in which lenders were largely at fault because they failed to verify borrowers’ income or assets is equally wrongheaded, Liebowitz said, citing his analysis of loan-level data from McDash Analytics.

Since the third quarter of 2006, the foreclosure rate for prime loans increased by 488 percent compared with a growth rate of 200 percent for subprime foreclosures. And the 12 percent of homes in Liebowitz’s analysis that had negative equity comprised 47 percent of all foreclosures.

Loan defaults are up sharply, and with many government and banks self-imposed foreclosure moratoriums expiring, the biggest lenders indicated they are likely to move more aggressively to clear up a backlog of troubled mortgages.

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Blaming the increase of foreclosures squarely on subprime mortgage lenders who presumably misled borrowers into taking out complex loans at low initial interest rates is dead wrong, said economist Stan Liebowitz.The reason? New evidence shows 51 percent of all foreclosed...
mortgage,loans
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2009-02-07
 

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