Reading Stan J. Liebowitz (Ashbel Smith Professor of Economics at the University of Texas at Dallas) is always educational, because he explains convincingly why something one knew to be true is in fact wrong. His latest is Anatomy of a Trainwreck: Causes of the Mortgage Meltdown (Oct. 3, 2008), where he notes:
The recent rise in foreclosures is not related empirically to the
distinction between subprime and prime loans since both sustained the
same percentage increase of foreclosures and at the same time. Nor is
it consistent with the “nasty subprime lender” hypothesis currently
considered to be the cause of the mortgage meltdown. Instead, the
important factor is the distinction between adjustable-rate and
fixed-rate mortgages. This evidence is consistent with speculators
turning and running when housing prices stopped rising.
Steve Malanga continues the discussion in Foreclosure Myths: Can the Media Handle the Truth?
But many buyers don’t qualify [for federal aid] precisely because they made speculative
loans or were intent on flipping their homes, and they instead walked
away from their mortgages at the first sign of home depreciation. These
folks aren’t current on loans that haven’t even reset yet, and aren’t
about to tough it out on a loan even if they can negotiate a lower
monthly payment, because it will take years for the value of some of
these homes to get back to the original selling price.
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