My newest piece can be found here
With the government takeover of Freddie Mac and Fannie Mae as well as other bankruptcies in the financial sector, there are a lot of questions. The strangest fact is that the housing sector is having such problems when the economy otherwise has been doing well. Why have there been so many defaults when the economy has not been in a recession? Defaults have been at historically high rates despite reasonable economic growth and a relatively low unemployment rate of 6.1 percent.
Some, such as James H. Carr, the CEO of the National Community Reinvestment Coalition, argue that the high default rates are a result of "unfair and deceptive practices, steering customers to high price loans . . . High upfront payments made it so that they couldn't later pay their mortgages."
Surprisingly, research done by economists a decade ago in 1998, particularly by Professors Ted Day and Stan Liebowitz at the University of Texas at Dallas, predicted the current problems and tried to warn people of a different cause. Starting during the early 1990s, mortgage-underwriting standards have been consistently weakened. Many of the names involved in the forefront of those changes, Freddie Mac and Fannie Mae as well Countrywide and Bear Stearns, , have been the most prominent financial entities to become insolvent. . . .
Labels: Economics, mortgagecrisis