# Too much deregulation - not hardly



## Bobm (Aug 26, 2003)

The other thread got me thinking about this so I thought I would post it, its dry long and complicated read it anyway read it twice

we are being played by politicians covering their A$$eS in this recession

article starts below this point

Are We Ailing from Too Much Deregulation?
David R. Henderson

David R. Henderson is a research fellow with the Hoover Institution and an associate professor of economics at the Naval Postgraduate School in Monterey, California. He was previously the senior economist for energy policy and health policy with President Reagan's Council of Economic Advisers. He is the editor of The Concise Encyclopedia of Economics.

Americans May be Losing Faith in Free Markets" reads the title of a July 16 "news analysis" by Los Angeles Times reporter Peter G. Gosselin. "Wave Goodbye to the Invisible Hand" is the title of an August 1 article by Pulitzer Prize-winning Washington Post columnist Steven Pearlstein.

This recent trend in economic reporting actually began with an April 13 article by New York Times economics reporter Peter S. Goodman titled "A Fresh Look at the Apostle of Free Markets." Goodman's article, which I examined at length on the [email protected] blog, was full of misinformation, not just about his subject, Milton Friedman, but also about economic thought and about the state of the U.S. economy. The newer articles continue the trend. And they're all wrong.

Many journalists claim that the U.S. economy since the late 1970s has been very free, with little regulation; that this absence of regulation has caused markets to fail; that there was a consensus in favor of little regulation; and that, now, this consensus is fading. On all these counts, the reports are false. Specifically, the U.S. economy has not been free since before the New Deal of the 1930s. Even before the 1930s, the U.S. economy was "mixed"-that is, a combination of economic freedom and government regulation-and Franklin Roosevelt's New Deal altered the "mix" substantially toward regulation and away from freedom. The deregulation of the late 1970s and 1980s reversed some of the regulations that came with the New Deal and some that preceded it, but the net amount of regulation has been much higher in the alleged era of deregulation than it was during the post-National Recovery Admnistration New Deal. Moreover, most of the apparent "market failures" that these articles refer to fall into one of two categories: Either they are not market failures at all, but market successes, or they are failures that are due to government regulation. Also, the consensus has not shifted from deregulation to regulation: there never was a consensus in favor of deregulation. There was a consensus in favor of deregulation among economists and a minority of politicians in the late 1970s and early 1980s, but never among the majority of politicians. Finally, most of the problems that have happened in the U.S. economy in the last few years strengthen the case for economic freedom and against government control.

Consider some specifics. Pearlstein writes: For the past 25 years, the United States has put its faith in open, unregulated and lightly taxed markets, and there's little doubt that, over time, that model has expanded economic output and improved economic efficiency. But what Americans have also come to realize is that the same model is less adept at providing other things that we value highly-things like safety, fairness, economic security and environmental sustainability.

There are two main problems with that two-sentence paragraph: the first sentence and the second sentence.

An Era of Deregulation?

Take the first sentence. "Unregulated markets" for the past 25 years? The Federal Register, which lists new regulations, averaged 72,844 pages annually during the Carter years from 1977 to 1980. These were presumably, by Pearlstein's 25-year standard, the last time before now that Americans didn't have "faith" in open, unregulated markets. Then the average fell to 54,335 during the Reagan years, rose to 59, 527 during the Bush I years, to 71,590 during the Clinton years, and, finally, to a record 75,526 during the administration of that great believer in laissez-faire, George W. Bush. It's true that when governments deregulate, they must announce those changes in the Federal Register, too, and so some of the pages represent genuine deregulation. But most of the pages were new regulations, no matter what president was in power at the time. So, far from moving away from regulation, the U.S. economy became even more regulated during Pearlstein's alleged 25-year era of light regulation.

Of course, the number of pages in the Federal Register is a crude measure of regulation. But it's not the only measure we need rely on. Veronique de Rugy and Melinda Warren, in "Regulatory Agency Spending Reaches New Height," an August 2008 report by the Mercatus Center and the Weidenbaum Center, found that between 1980 and 2007, roughly the years that Pearlstein labels "unregulated," the number of full-time employees of U.S. government regulatory agencies increased 63 percent, from 146,139 to 238,351. During that same time, the U.S. population rose from 226.5 million to about 301 million, an increase of only 33 percent. Moreover, according to de Rugy and Warren, U.S. government spending on regulation alone (not including compliance costs, a much bigger number) tripled, from $13.5 billion to $40.8 billion (all in 2000- year dollars.) As a percent of GDP, spending on regulation rose from 0.26 percent to 0.35 percent, a 35-percent increase. Some deregulation.

One could argue that we need to distinguish here between different kinds of regulation. Often people refer to "economic regulation" when they mean restrictions on whether new firms can enter businesses or that require firms to get government permission before setting their prices. If this is what they mean, then there is a case to be made that, in substantial sectors of the economy, there is less government regulation now than before the late 1970s. There has been substantial deregulation at the federal level of airlines, trucking, railroads, oil, and natural gas, to name five large sectors. And indeed, as we shall see later, this deregulation has had, on net, good effects.

What was the nature of this new regulation? The biggest growth came in so-called "homeland security," where spending more than quintupled, from $2.9 billion in 1980 to $16.6 billion in 2007 (all in real 2000 dollars). The second-largest growth rate was in regulation of finance and banking, where spending almost tripled, rising from $725 million to $2.07 billion. Together, regulation of homeland security and of finance and banking now account for over half of federal regulatory spending.

Markets vs. Government

Also incorrect is Pearlstein's second sentence. Free markets have done much better than governments at providing safety, fairness, economic security, and environmental sustainability. The reason, for three out of the four, is simple. Economic freedom tends to lead to economic growth, as Pearlstein himself admits in the above quote, and economic growth leads to more safety, more economic security, and more demand for environmental quality. Safety and environmental quality are what economists call "normal goods." As our real incomes rise, we want more of them. Over the 20th century, as our real incomes rose, we workers demanded more safety. And we got it. As economist W. Kip Viscusi notes in "Job Safety," published in The Concise Encyclopedia of Economics, as U.S. per capita disposable income per year rose from $1,085 in 1933 to $3,376 in 1970 (all in 1970 prices), death rates on the job fell from 37 per 100,000 workers to 18 per 100,000. Note that all of this preceded the Occupational Safety and Health Administration, which began in 1970. This shouldn't be surprising. As workers, we show our demand for safety by the wage premium we insist on to take a given risk. As real incomes rose, this wage premium rose. Employers found it cheaper to avoid some of the risk premium by reducing risk-that is, by increasing safety. In short, there is and has been a "market for safety."

The case with environmental quality is similar. Past some income level, environmental quality is almost certainly a normal good, that is, a good that people demand more of as their income increases. But demand does not guarantee supply. Why not? One major factor is that so much of the environment is a "commons," a resource that everyone can use but no one owns. As Garrett Hardin pointed out in his classic 1968 article "The Tragedy of the Commons," when no one owns a resource, it will be overused because no one has much incentive not to overuse it. One obvious solution is to transform, to the extent possible, the commons into private property. This has been done with rivers, lakes, and land, but is hard to do with air and oceans. But certainly we could go much further toward private ownership than we have until now, turning rivers, for example, into private property, as is done in Scotland. Scotland, not coincidentally, has pristine rivers. So note the irony. Contra Pearlstein, one reason that we haven't had the environmental quality we have demanded is that overregulation has prevented private ownership.

On the issue of economic security, the wealthier we are, the more secure we are. And because, as Pearlstein himself admits, economic freedom creates wealth, it necessarily creates security. Virtually no one in America ever needs to worry any more about starving. That is in part due to the welfare state but is mainly due to the riches created by relatively free markets. Of course, if, by "economic security," Pearlstein means confidence that one's income will never fall, then he's right that markets don't lead to that. Nor does government regulation. Government regulation of the economy's money supply, high tariffs, high taxes, and regulations that kept wage rates high all caused the Great Depression or contributed to its length.

Freedom and Fairness

Pearlstein objects that economic freedom does not lead to fairness, but it does. One of the fairest things in life is that people reap what they sow, getting the benefits when they make good decisions and bearing the costs when they make bad ones. Markets create that fairness every day. And what makes Pearlstein's argument ironic is that elsewhere in his article he writes that "government has had to step in to rescue the markets from their excesses and prevent a meltdown of the financial system." If he really believes that these are excesses and if he really wants fairness, why does he think that the government should bail people out from their mistakes? Some of the people whom the government is bailing out are very wealthy people who will retain more of that wealth because of the bailouts. Many of the people paying taxes for the bailouts are middle-income people who acted responsibly. Just what is Pearlstein's view of fairness, anyway?

In his article, Gosselin details three factors that are "pushing people to favor more regulation"-the high price of gasoline, the fall in house prices, and the dismal performance of the stock market for most of the current decade. If Gosselin were simply stating that these factors have made people more favorable to regulation, he might have a point. But that's not all he does. He seems to take the side of those who see these three factors as market failures. On gasoline prices, although he points out that most economists think these prices are due to "booming global demand meeting limited global supply," he dismisses this reasoning, arguing that "the price run-ups seem out of whack with demand, which has increased only about 1% worldwide." But Gosselin is confusing demand and consumption. It's consumption of oil that has increased a little. Demand has increased much more than consumption. That's why the price rose. A standard exercise in introductory economics classes is to show students that when supply is fairly inelastic and demand increases a lot, the price will rise a lot, and the actual amount produced and consumed will rise just a little. That's what has happened in the world oil market. Moreover, why has global oil supply been so limited? There are three main factors, all of which are entirely due to regulation. The first factor is OPEC, an organization of governments that regulates the supply of oil. OPEC was formed, incidentally, in response to President Eisenhower's regulations on oil imports, which discriminated against imports from the countries that formed OPEC. The second factor is that almost all oil-producing countries in the world have government-run oil industries. The third factor is the U.S. government's restrictions on offshore drilling for oil and on oil development in the Arctic National Wildlife Refuge. Whether one favors or opposes these restrictions on drilling, the point is that they do constrain the supply of oil and do, therefore, cause the price of oil to be higher than otherwise.

Interestingly, Gosselin leaves out the major price declines that have occurred in some of the most unregulated or newly deregulated parts of the economy: computing power (there is little regulation of the computer industry) and clothing (there has been a major shift toward free trade in clothing.)

Fannie, Freddie, and the Housing Crunch

On housing prices, Gosselin claims that "the rise in house prices and the recent plunge grew out of an almost unregulated corner of the mortgage market-the one for riskier loans." But in fact much of this problem arose from regulation. Jeffrey Hummel and I detailed how in Investors' Business Daily ("Blame the Feds, Not the Fed, For Subprime Mortgages," March 23, 2008). Federal government regulation contributed in three ways. First, the federal government helped cause the boom in housing prices by helping cause moral hazard: people taking risks because they know that if things turn out badly, someone else will bear some of the cost. The federal government's semiautonomous mortgage agencies-Fannie Mae, Freddie Mac, and Ginnie Mae-all buy and resell mortgages. Of the more than $15 trillion in mortgages in existence in early 2008, about one third were owned by, or were securitized by, Fannie Mae, Freddie Mac, Ginnie Mae, the Federal Housing and Veterans Administration and other government agencies that subsidize mortgages.

Although Fannie Mae and Freddie Mac were no longer government agencies during the time period at issue, they were government- sponsored enterprises. Many buyers of their repackaged loans, therefore, assumed an implicit federal-government guarantee. That assumption, as we now know, was all too true. This implicit guarantee caused less scrutiny by lenders than otherwise, which helped drive up housing prices.

The federal government's second contribution to the increase in housing prices was the Community Reinvestment Act. This act, first passed in 1977 and beefed up in 1995, requires banks to lend in high-risk areas that they otherwise would avoid. Banks that fail to comply pay fines and have more difficulty getting approval for mergers and branch expansions. As Stan Liebowitz, a University of Texas economist, has pointed out, a Fannie Mae Foundation report enthusiastically singled out one mortgage lender that followed "the most flexible underwriting criteria permitted." That lender's loans to low-income people had grown to $600 billion by 2003. Its name? Countrywide, the largest U.S. mortgage lender and one of the lenders in the most trouble for its lax lending practices.

Finally, a little-noted change in regulations by the comptroller of the currency in December 2005 acted as the trigger. The comptroller made it mandatory for banks to require minimum payments on credit card balances, causing increases of at least 50 percent for most cards and as much as 100 percent on others. Many people who hold subprime mortgages are people for whom a higher monthly payment on a credit card would be a problem. Whereas before this regulation, many people's priorities would have been mortgage first, credit card second, the new regulation caused many borrowers to reverse the order. Thus the comptroller's seemingly small increase in regulation had the unintended effect of causing some mortgage borrowers to default.

This is not to say, of course, that private businesses never do anything stupid unless it is caused by bad government policy. Certainly, many actors in the private sector put their and other people's money at risk in absurd way. It is safe to say, though, that in the case of the subprime mess, regulation and government subsidies deserve much of the blame.

Why Regulation Fails

Moreover, notably absent from all four earlier-mentioned articles is an argument for why regulation would work or how deregulation fails. I have already provided evidence of how badly regulation has worked in oil and in the housing market. But there's more to say. There are two main reasons that regulation generally works out badly. One is that the regulators have little incentive to get things right. Indeed, when their regulations fail, they often use this fact to argue for more power and more regulation. Astonishingly, the argument often works. The second reason is that regulatory agencies are often captured by the politically powerful and used to stomp out competition. The recent regulations on housing finance, for example, require mortgage brokers to be licensed. That will reduce competition in mortgage brokering and enhance the incomes of existing mortgage brokers.

And we have powerful evidence of the beneficial effects of deregulation. Air fares, for example, according to Brookings Institution economists Clifford Winston and Steven Morrison, are 22-percent lower than they would have been had regulation continued. Brookings economist Robert Crandall and Mercatus economist Jerry Ellig estimated in the late 1990s that when the lower air fares are adjusted for the decline in quality and amenities, passengers saved a cool $19 billion a year. In other words, the majority of us prefer lower fares to higher fares, more meals, and emptier airplanes. According to Hoover Institution economist Thomas G. Moore, between 1977, the year before deregulation of trucking began, and 1982, inflation-adjusted rates for truckloadsize shipments fell by 25 percent and service quality improved. And, of course, because of decontrol of oil and gasoline prices under presidents Carter and Reagan, increases in world oil prices have been passed on to consumers rather than suppressed, so that the time-killing line-ups for gasoline in the 1970s have not been repeated.

It's possible that I'm being uncharitable in interpreting Gosselin. Perhaps his tone simply reflects the tone of Americans whom he sees as souring on economic freedom. *But shouldn't economic journalists, whatever else they do, get the facts right? 
And the three overriding facts are: (1) we have not had a period of light regulation, (2) deregulation didn't fail, and (3) regulation makes things worse.*
This article originally appeared in the November/December 2008 edition of Cato Policy Report.


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## TK33 (Aug 12, 2008)

Good post. Actually I will say great post.

The licensing of mortgage brokers also has the intention of getting rid of or controlling predatory lenders. I went in for a mortgage in 2002 and they wanted to give me the moon, they wanted me to spend way more than I should have or even could afford. Even more funny is that while they were going to give me all this money to buy a house out of my means they wanted all info on relatives and so on, they also had all these bogus numbers to try to show me how I could actually afford this when I knew I couldn't unless I sacrificed everything like hunting, driving, and switched from toilet paper to leaves. Attempted predatory lending. In 2007 I got another mortgage that was well within my budget, I had 28% down and the house was purchased at 10% below tax value and about 12% below appraised value and I had to go through a gauntlet to get the loan. They knew the crash was coming.

Your comment on stomping out competition is very real. I am not sure about right now but in early 2008 the small mortgage lenders, even the good ones were going down the tubes and as one broker told me soon it will be a trinopoly between wells fargo, us bank, and one other east coast bank that has slipped me.

I am still at a loss for how deregulation didn't fail in the commodities. We have these very volitile oil markets, the collapse of verasun ethanol from hedging on corn prices, and so on. It is too convienent that in 2003 when deregs went in that oil and the others skyrocketed. China and India were well on their way by then and the deregs just made things worse. To be clear they are not the only reason but they are a big contributor. The other problem is how to deal with laws and regs when you have China, India, and others intentionally deflating their economies to keep their costs low for export purposes. The only solution I can think of is making investors have the cash on hand at time of acquisition. I do not know if this is all that good of an idea either. Under Clinton people were taking out loans to play markets and under GW you could buy commodities with only a small percentage down. Both I think are bad ideas whether it is oil, corn, stocks, etc. There just is too much dark money and not enough hard cash being used and spread across balance sheets.

One thing I learned in college about economics, history, and business instructors they all have political agendas. The facts tend to get misconstrued to their favor, whatever that may be.


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## Bobm (Aug 26, 2003)

Heres are two simple questions

1) who is to blame if someone enters into a contract they cannot afford?

the lender or the borrower I say the borrower in your example above you made a good decision simple as that.

2) who is to blame if lenders are offering people "the moon" as you stated it

answer Carter then Clinton now Barney Frank, Chris Dodd, the black congressional coalition, and Obama was even in this.

Whats frustrating to me is the media is so left leaning they fail to do there job and truthfully report this in a way that the dumbed down public understands. This failure allows the same bad actors Frank and Dodd to continue to spend taxpayer monies for based on social and political advantage rather than sound business principles. Whats even more frustrating is Bush goes along with them :eyeroll: .

And the whole country suffers and when the whole country suffers the folks at the bottom of the income spectrum suffer the most and become even more dependent on govt. which is precisely why the Democrats are doing this.

The democrat party could not survive without the dependent class their mismanagement creates and maintains soley so they can wield power.

NOTE None of the policies they lay on the public apply to them 
:******: :******: :******: :******:


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## Plainsman (Jul 30, 2003)

TK33 good decision on not taking the loan. I have been in that same predicament. If banks survived on their own they would never offer you something you might fail at. It would mean they would get stuck with a house worth less than they had in it.

So why do they? Because they were backed up by the government demanding better access to loans for people who can not afford a home. Liberals think the wineo living in a cardboard box in an alley deserves a home just like you now live in. I agree. The difference is I think he needs to get a job and earn it and the liberals think they need easier loans of high risk. I am sure banks baulked at it, but the government backed them up. If there was predatory lending it was also a direct result of no risk to the bank.

I am not arguing that some predatory lending did not occured. At that same time parasitic lending was occurring. Some banker may have been licking his chops when a person who could not afford it purchased a $500,000 home. That person may well have known he could not afford $100,000 but he didn't care he planned on living in it for a couple of years and then defaulting. Live like a king today and a begger tomorrow the buyer only cared about today. In either case the bleeding hearts caused it.


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## TK33 (Aug 12, 2008)

We need to keep in mind that there are people who have not had the education to understand what they are getting into when getting a mortgage or loan. These people unfortunately think that the lenders are following the laws that are in place and would never be able to rip them off and are looking out for their best interests. We all now know that this was rarely the case.

1) The intention of Fannie and Freddie was to get loans to people who otherwise could not afford a loan. The mind boggling part of this is the people who Fannie and Freddie intended to help are not causing this mess. As I am sure you guys are aware of it is the 300k to 750k that is the vast majority of foreclosures. People who knew better than to get themselves into this. Right now in ND if you default all you have to do is go to a class for like 8 hours and the gov't will help you get out. I got this info from a mortgage broker in Fargo. The only logical solution to this is to make people accountable, if there was misrepresentation or predatory lending they should be able to restructure and continue to live in their home. If there was not, screw em, put their homes on the market or auction them off.

2) I blame both parties, the dems for putting this type of lending in place and the repubs for enabling it.

The real problem with lending and the business world in general is a lack of business ethics. Pair that with no legislation with any teeth to control this. I hate these people, they belong maximum security doing hard time with other criminals. At least an armed robber has the common courtesy and backbone to do it to your face. These jerks make 1 million dollars and the gov't fines them 10 grand, it is only good business to continue ripping the consumer off.


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## Plainsman (Jul 30, 2003)

TK as much as we debate I think in reality we are close to the same page. I would throw the predatory lenders and the parasitic borrowers into the same cell. The ones that acted intentionally that is.


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## TK33 (Aug 12, 2008)

When I was typing my last post I was thinking the same thing, the only difference is who gets more of the blame.

:sniper: predatory/parasitic lenders

:sniper: crooked execs

:sniper: sellout politicians


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## Bobm (Aug 26, 2003)

How specifically did the republicans enable it Bush fought it with Congress and lost. Bush is a putz but this is not his doing.


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## Bobm (Aug 26, 2003)

The problem is the government decided to force banks to make bad risky loans to people that would never be able to qualitfy under normal terms then bought those loans and sold them as "investments".

The Dems did this.

http://www.nytimes.com/2007/11/04/weeki ... nted=print
--------------------------------------------------------------------------------

November 4, 2007
The Nation
What's Behind the Race Gap? 
By VIKAS BAJAJ and FORD FESSENDEN
High-cost subprime mortgages have often been framed as loans that catered to people with blemished credit records or little experience with debt.

There has been less attention paid to the concentration of these loans in neighborhoods that are largely black, Hispanic, or both. This pattern, documented in federal loan records, holds true even when comparing white middle-income or upper-income neighborhoods with similar minority ones.

Consider two neighborhoods in the Detroit area. One, located in the working-class suburb of Plymouth, is 97 percent white with a median income of $51,000 in 2000. To the east, a census tract in Detroit just inside Eight Mile Road has a very similar median income, $49,000, but the population there is 97 percent black.

Last year, about 70 percent of the loans made in the Detroit neighborhood carried a high interest rate - defined as 3 percentage points more than the yield on a comparable Treasury note - while in Plymouth just 17 percent did.

Last year, blacks were 2.3 times more likely, and Hispanics twice as likely, to get high-cost loans as whites after adjusting for loan amounts and the income of the borrowers, according to an analysis of loans reported under the federal Home Mortgage Disclosure Act. (Asians are somewhat less likely than whites to take out high-cost loans.)

Researchers and industry officials agree that there is probably no single explanation for the lending patterns, though the history of banks' avoiding minority neighborhoods, the practice known as "redlining," is a good place to start. (Experts have to resort to guesswork because the government does not require lenders to report information about borrowers' credit scores, down payments and other details used in pricing loans.)

Lenders say that in general higher rates are justified to account for the bigger risks posed by borrowers who have a poor record at paying bills on time and defaulting on debts. And a recent Federal Reserve study noted that neighborhoods where people tend to have lower credit scores also tend to a greater concentration of high-cost loans.

The study suggests that the concentration of high-cost loans is not caused by an area's racial makeup, though there is a correlation, said Jay Brinkmann, vice president for research and economics at the Mortgage Bankers Association.

But the Fed study also suggests that a big part of the reason may have to do with the lenders that minority borrowers do business with. The biggest home lenders in minority neighborhoods are mortgage companies that provide only subprime loans, not full-service banks that do a range of lending.

It may be that these borrowers do not have access to traditional banks, because there are no branches near them. *The Community Reinvestment Act, enacted 30 years ago, was intended to address redlining by forcing banks to make loans in lower-income areas*. But the law's provisions do not apply to banks in neighborhoods where they have no branches.

"You could go into a middle-class area in Queens County that is white and there will be lots of banks on the shopping street," said Alfred A. DelliBovi, president of the Federal Home Loan Bank of New York and a deputy secretary of the Department of Housing and Urban Development in the first Bush administration. "If you go to an area that is equal income and that is black, you won't see many."

Banks typically locate branches where they believe they will get the most deposits. A lower savings rate and a distrust of banks stemming from a legacy of redlining may help explain why there are fewer branches in minority neighborhoods, Mr. DelliBovi said.

A bigger reason may be that in recent years many subprime loans were not sought out by borrowers but actively sold to them by brokers and telemarketers, said Calvin Bradford, a housing researcher and consultant. A majority of the loans were refinance transactions allowing homeowners to take cash out of their appreciating property or pay off credit card and other debt.

Lenders made the risky loans, then often sold them to Wall Street investors. Many borrowers appear to have been swayed by brokers and lenders offering to look out for their best interests even when they had no obligation to do so.

"If we turn the clock back 30 years ago, we had redlining," said Nicholas Retsinas, director of the Joint Center for Housing Studies at Harvard University. "In the last few years, we have had the opposite - an overextension of credit by lenders and an overextension by borrowers."

The country needs to find a balance, "a way to extend credit at a reasonable cost to people with impaired credit," he said. The government, through programs like the Federal Housing Administration and the big mortgage purchasers Fannie Mae and Freddie Mac, must play a critical role, Mr. Retsinas said, adding that he worries that the efforts initiated so far are not robust enough.

"There are lots of people trying to do the right thing," he said. "But at this time I'm not very sanguine that we will deal with this in a concerted manner."


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## Bobm (Aug 26, 2003)

> As I am sure you guys are aware of it is the 300k to 750k that is the vast majority of foreclosures. People who knew better than to get themselves into this.


prove this give me a link

the lower end seems right and I believe its based on locality IE california might be 750K but most midwest states will be much much lower.

WASHINGTON, D.C. (July 3, 2007) - The percentage of subprime loans being used by first-time home buyers increased from 12 percent to 15 percent in the second half of 2006 according to the Mortgage Bankers Association's (MBA's) Subprime Mortgage Originations Survey released today. The percentage of subprime loans used for repeat and first-time home purchase increased from 46 percent to 47 percent. 
Key findings from the survey include (percentages are based on dollar volume of originated loans):

- For the second half of 2006, 55 percent of subprime originations were for refinance purposes unchanged from the first half of 2006 (see Chart 1). Among subprime refinances, 87 percent were for cash-out purposes compared with 75 percent for the first half of 2006. However, in the first half of 2006, 12 percent of refinances were reported as "unknown" or "other purposes" and thus, the refinance for cash-out purposes in the first half of 2006 could very well be higher.

- Based on loan count, 32 percent of subprime purchase loans were made to a first-time home buyer, up from 25 percent in the first half of 2006.

- *The average loan amount for subprime loans in the second half of 2006 was $202,295, only 1 percent higher than the average loan amount for subprime loans of $200,167 in the first half of 2006. *

-Almost three-fourths, or 72 percent, of subprime originations came through the broker channel in the second half of 2006, an increase of 3 percent from the first half of 2006.

- Adjustable Rate Mortgage (ARM) loans (including Interest Only ARM Loans) comprised 75 percent of subprime originations in the second half of 2006, versus an ARM share of 67 percent of subprime originations in the first half of 2006 (see Chart 2).

- Owner occupied homes represented 93 percent of subprime originations in the second half of 2006 versus 92 percent in the first half of 2006 (see Chart 3).

- The average loan amount for second mortgages in this half was $35,506, an increase from $33,555 in the first half of 2006. The increase in the average loan amount along with the rise in the number of second mortgage originations was driven largely by a sharp increase in closed-end loans.

This is the third report on subprime mortgage originations. The inaugural report covered subprime origination data from the second half of 2005. Thirteen subprime companies participated in this survey, including many of the top 10 subprime originators. The subprime company information includes origination data from companies that originate at least 50 percent subprime or ones that could break out their subprime originations separately.

If you are not a member of the media and have questions about the Subprime Mortgage Originations Survey, please contact Vincent Varma at (202) 557-2831 or Joel Kan at (202) 557-2951.

###

The Mortgage Bankers Association (MBA) is the national association representing the real estate finance industry, an industry that employs more than 370,000 people in virtually every community in the country. Headquartered in Washington, D.C., the association works to ensure the continued strength of the nation's residential and commercial real estate markets; to expand homeownership and extend access to affordable housing to all Americans. MBA promotes fair and ethical lending practices and fosters professional excellence among real estate finance employees through a wide range of educational programs and a variety of publications. Its membership of over 2,400 companies includes all elements of real estate finance: mortgage companies, mortgage brokers, commercial banks, thrifts, Wall Street conduits, life insurance companies and others in the mortgage lending field. For additional information, visit MBA's Web site: www.mortgagebankers.org.


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## TK33 (Aug 12, 2008)

> Quote:
> As I am sure you guys are aware of it is the 300k to 750k that is the vast majority of foreclosures. People who knew better than to get themselves into this.
> 
> prove this give me a link


I should have been more clear, home values of 300-750k, not loan value. I read it on FOX news a few months ago. It has been all over the news and various internet sites. I found the exact same loan value that you did also.


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## Bobm (Aug 26, 2003)

Most of the bad loans are in minority inner city areas those values can't be right.

Although I am sure that some folks in that price range probably lost their jobs and are in trouble also.

Personally I cannot imagine paying 700K for a house, come to think about it you may be right, there are a lot of very high dollar houses up for sale around here right now.

In the area I live there have been at least 10,000 houses built within a 5 mile radius of my home in the last 10 years many of them in that price range or more. Huge homes some over 10,000 sq feet. What in the heck would you want one for what a pain in the *** it would be to heat and maintain. I'm going to take a ride into some of those neighborhoods and check out the for sale signs and see for myself.


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## DecoyDummy (May 25, 2005)

I can tell you folks this ... I do work in homes every day, that's what I do, I go to homes and provide a very common service. Re-sale homes are often involved in my daily activity.

Over the past couple of months I have been to maybe six or eight forclosure properties which were purchased from the bank. These were purchased at nearly half price compared to what they were worth three to four years ago. I can tell you three of those houses were a million dollars a few years ago and two of the three easily over a million. Zero of them were in poor areas all were if rather upscale neighborhoods and most were in upscale or elite neighborhoods.

So I suppose part of the question is are you talking todays value or three to four years ago value? There is a very blurry line there when this discusion comes up.

I would feel safe in saying I believe far and away the bulk of distresses money "went up" in the form of high end houses.

Don't underestimate the fact that some very wealthy people bought additional houses simply because they had cash on hand and could get into a house for very, very little money up front and pay on interest only loans thinking they would then sit back and watch the meger (to them) investment climb. When the bottom fell out and values dropped they could financially afford just walk in and hand the deed back to the bank (so to speak) and say, "ummm, here I don't want this any more". This may not be the most common scenerio, but it is one that happened and involved very big money when it did.

From where I sit I don't see those numbers are at all out of the question.

I fully agree with the premise of the thread ... which I interprete to be, that in a free market the regulation would not be necessary to begin with. The profit (or loss) motive would be the regulator. With that inherent regulator bullied off it's pedistal ... all sorts of regulation becomes necessary, and not so much to protect the system from collapse, but to protect face for those who knocked Capitalism off it's pedistal ... when the system does collapse.

Or so it seems to me.


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## TK33 (Aug 12, 2008)

> Most of the bad loans are in minority inner city areas those values can't be right


I found that info on fortune.com. There have been a lot of inner city foreclosures but some of them have been multiple dwellings. There was the sheriff in Chicago, Cook County I think that was refusing to do foreclosures because the people that lived there were paying their rent on time but the property owner failed to make his payments. So they were putting people on the street that were paying their bills. I don't know why they didn't make those types of properties have the tenants pay directly to the lender and cut some of their losses.

If you go on fortune.com it shows where the worst foreclosures are and their median values. Of course the home values are parachuting also which will bring that number down. I am positive on that number of 300k and up homes, I have heard it on several occassions from several different news sources.


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## Bobm (Aug 26, 2003)

Yeah I guess 300K isn't much for a house anymore in many places which is ridiculous in itself.

re the deal on Cook county ; the bank should have to take it on the chin because the renters are paying and the landlord owner isn't.

Thats between the renters and the landlord, I admit its a sad situation.

Banks dont want to and do not have the people or expertise to be landlords so your idea while kindhearted is unworkable.


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## TK33 (Aug 12, 2008)

it would unfortunately be unworkable. maintenance, taxes, building codes are not bankers' business. It is a waste to see the renter's money just go down the tubes.


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