By Karen Petrou
In the wake of the great financial crisis, an axiom of consumer finance is that high-risk borrowers are disproportionately lower-income people. Indeed, the term “subprime” has become a virtual synonym for the lower-income households generally designated with low credit scores and, thus, the subprime sobriquet. However, a growing body of research demonstrates conclusively that subprime borrowers were not the villains of the mortgage debacle at the heart of the 2008 cataclysm: it turns out that prime borrowers behaving in subpar ways defaulted far more often than low-income households trying to become homeowners. Continue reading “The Low-Income High-Risk Myth”
By Karen and Basil Petrou
In the raft of crisis retrospectives released during the ten-year anniversary of the Great Financial Crisis, general consensus continues the conventional wisdom that subprime mortgages were the spark of the subsequent conflagration. A new study from the Federal Reserve Banks of Atlanta and New York mobilizes formidable data to show that hapless subprime purchase-money borrowers were victims, not perpetrators. The borrowers who did the damage that precipitated the debacle were, they find, prime borrowers whipped into a speculative frenzy by the combination of low rates and flagrantly-unwise mortgage lending. Theoretically, post-crisis reforms have solved for this. Actually, maybe not given the exodus of mortgage securitization from regulated entities, sharp rise in cash-out refis, and investment-focused borrowing with house prices well above affordability thresholds in many major markets. Continue reading “It Wasn’t the Butler”
By Karen Shaw Petrou and Basil N. Petrou
Last Thursday, the Senate Banking Committee considered the confirmation of Brian Montgomery to be the Trump Administration’s Federal Housing Administration (FHA) Commissioner, allowing him to step back in to the shoes he filled in the George W. Bush Administration. But, times are different now – as we’ve noted before, the U.S. is far less economically equal than it was even in 2007 and the residential-mortgage market largely serves only the most creditworthy, wealthiest households.
Continue reading “Home Ownership, Wealth Accumulation, and the FHA”