 |
| Black Swan: Regulatory Perspective |
Senior economist (a certified Robusterian*) and policy advisor for the Federal Reserve Bank of Boston Paul S. Willen was quoted for the "we-know-better-than-you" theoretical elite: "If our goal is to prevent foreclosures, I can't think of anything more effective than requiring a down payment". (* see "robust"... meaning "written by an idiot".)
 |
| Dealing with the facts ... and the truth. |
The counter argument - that down payments do not significantly reduce the rate of default on properly underwritten loans - was voiced by Professor Roberto G. Quercia, Director of the Center for Community Capital at the University of North Carolina at Chapel Hill.
Mr. Willen had his august title, position, and sense of self-importance to bolster his opinion; Professor Quercia had the data and the facts on his side. (But as credit unions know from experience, sometimes the facts are only an inconvenience to a federal regulator.)
As the NYT article described, Quercia had, since 1998, been studying and tracking the performance of a large group of mortgages in a special program for low-income borrowers, typically those with a low or no down payment.* From 1998 through last year, 5.5 percent of the mortgages ended up in foreclosure. Sub-prime mortgages made during the last housing boom, regardless of down payment size, had far higher foreclosure rates, roughly 25%. Losses to borrowers in the study group which had made a 20 percent down payment were lower at 3.9%, but not significantly lower when the loan was carefully underwritten. *(For the record, those loans with little or no downpayment were charged 1/2 to 1% more to compensate for the implied extra risk, which proved to be more than adequate to cover the slight increase in losses.)
So, what's the point...
 |
| They do exist... many of them are Credit Unions !! |
Isn't that what credit unions were created to do?
.... and isn't our - all credit unions - record better than the recent track record of all the Wall Street white swans and all the
 |
| "You may look like you're lily white.. but we all know better !!" |
Professor Quercia knows, if you dare to ask.... but without a "federal rule" a regulator might actually have to listen and think... it would appear that some self-important, robust regulators - despite the facts - would prefer to deny housing to the young, the poor, the soldier, the sailor, the firefighter, and the policeman.... after all, the "little guy" has no clout, has no voice in this "insiders'" debate....
Isn't that what credit unions were created to do ?
7 comments:
Isnt that what credit unions were created to do?
This is the perfect question to ask in order to understand why credit unions are not black swans or a black swan event.
If we take 1934 as the starting point for credit unions in the US, knowing they existed before, yes.
At the peak there were perhaps 35,000.
Never achieved more than perhaps 7% of US deposits.
In the focus of the American consumer/homeowner, credit unions never were a black swan. Putting aside whether or not they SHOULD be. They have not been , are not and won't be. 78 years of trying, didn't happen.
For 15 of those years had nearly a free reign to market to anyone.
A sample of a few hundred mortgages originated by one careful underwriter proves it can be done, but does not prove it can be done by thousands of lenders interfacing with millions of borrowers and scores of mortgage brokers and real estate agents, to name of few of the "players".
The robusterian at UNC and the robusterian in the ny times article are robusterians in arms.
Here is what the UNC robusterian is lacking, inclusion of the human element.
The human element is all the good and bad in the sampling of your few hundred mortgages, it's the also the good and bad of the 78 year sampling of consumer choice. It's also the good and bad of the events that led to the credit bubble, the Great Depression, this 2nd Depression and all other tragedies.
No money down on standardized mortgage product does not solve for the human element because not everyone is Jim Blaine as reasonable an expectation as that may be.
Standardized currency in Europe is struggling to succeed due to other things and the human element.
One type of auto might reduce traffic violations and accidents but it won't eliminate them.
Standardized mortgage product. Good idea. Good start.
Not a panacea.
Needs help.
Needs true accountability in the system.
The human element runs rough shod without accountability. Even the good guys need accountability with teeth.
Yeow, think that comment covered a lot of ground, but ended up with an opinion that even if Black Swans do exist, they should be ignored.
Two thoughts: 1) If people came in "standardized " packages, then a standardized mortgage would be an excellent answer...but people don't come packaged that way - thankfully !! 2) Perhaps at heart all this is a question of whether one believes that 'the glass is have full, or half empty"...whether people are "half good, or half evil; half honest, or half dishonest"...and wheres credit unions should come down on those questions.
The experience of the study says that Fan/Fred and other federal pundits had it wrong all along... they did (obviously!)... appear they still do !!!
The reason the credit union in NC is successful at limiting losses on mortgage is that they are making well underwritten HOME loans.
The government sponsored programs got bastardized and they started lending for HOUSES.
Don't get me started on the fool's errand of challenging a robusterian's dogma with fact.
One other thought... the accountability is there on these mortgages... local underwriting, local credit decisioning, local servicing, local money, local skin in the game... guess the one thing the mortgages lack is a federal guarantee... from a bankrupt federal GSE.
... might even be an example of how credit unions do serve those "of modest means".
If SECU were allowed to write only 30 year fixed, SECU would do it right.
Would others?
Would everyone?
Would all lenders in your area?
It's not a comment on glass half full or empty, it's human nature that you will have a competitor that will write at rates below you and squeeze your margins and his and all others.
That leads to the market dynamic of "how do I compete when my competitor has a scale or tax or (whatever) advantage?"
That eventually leads to accountability for actions or another calamity.
Standardized product with less IRR. Good idea.
Needs more.
Not everyone is Jim Blaine and team.
Not all are law abiding citizens or market participants.
Well can't we all at least agree that the Fan/Fred federal model was a failure... and try something else like .... local, local, local...
The federal model has had its chance at bat... and struck out...Fan/Fred should not be given a 4th, 5th, 6th strike... bench 'em!
Why do taxpayers guarantee someone's home mortgage anyway? Why not my car loan? Even better my credit card !!!!!
Or perhaps even every student loan... wait a minute forget I said that...
This issue is my issue...and very personally so. My credit score is well north of 800, my length-of-employment is 18+ years, and my approximate mortgage LTV is 108%. It began at 99%...7 years ago.
I also cannot refinance it to capture the current rates. That is an outrage.
Post a Comment