New favorite writer of mine, Martin Mandelman of Mandelman Matters, writes an interesting piece exonerating subprime borrowers from culpability in the mortgage meltdown:
“What did surprise me was what our politicians and the media started blaming the meltdown on: sub-prime borrowers. Anyone that read me back then knows it well… and if I said it once I said it a thousand times: it’s NOT the sub-prime borrowers. At best people were confusing a fuse… with the bomb.”
Now, while I too am not blaming the “subprime borrowers,” obviously, I think Andelman may play too gently on the role of subprime loans (aka “affordable housing”) in melting us down in grand fashion.
We should continue to remember (remind Congress) there is nothing dishonorable about renting.
Having said that, I am 100% in agreement–a little hard to argue with most empirical evidence–that loans that lacked reasonable down payments and even negative equity sent us into mortgage crazy land.
As Andelman quotes the good professor of economics, Stan Leibowitz:
“The evidence from a huge national database containing millions of individual loans strongly suggests that the single most important factor is whether the homeowner has negative equity in a house — that is, the balance of the mortgage is greater than the value of the house. This means that most government policies being discussed to remedy woes in the housing market are misdirected.”
After all, how many quarter to half-million dollar loans can a business get with 0% down? Right! A little risk management goes a long way.
About Bill Rice