Tag: Subprime Lending

The Inequality Under-Belly of “Sound” Consumer Finance

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By Federal Financial Analytics

In remarks on Tuesday, Karen Petrou will lay out two reasons why post-crisis financial regulation makes America less equal: rules are is aligned with real-world business incentives and capital standards unduly penalize equality-critical lending.  Basing her views on Federal Reserve research, Petrou focuses on the Durbin Amendment, qualified-mortgage standards, small-dollar/short-term lending, and subprime mortgages.  Continue reading “The Inequality Under-Belly of “Sound” Consumer Finance” →

It Wasn’t the Butler

~ Karen Petrou ~ Leave a comment

By Karen and Basil Petrou

Summary

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” →

Wondering Why Trump Loves Tariffs? Check Out Globalization’s Inequality Impact

~ Karen Petrou ~ 1 Comment

By Karen Shaw Petrou

When the IMF was established at Bretton Woods in 1945, it was key to the post-war creation of a globalized international economic and financial system.  That was then.  Now, the Fund has released a ground-breaking paper finding that globalization not only does not boost growth in advanced economies, but also appears to worsen income inequality.  The paper does not go on to push for protectionism – blasphemy at the Fund and not borne out for trade in goods by the detailed findings of this study.  It does, though, show that the more globalized capital flows grow in concert with more imports, the harder it is for low-skilled workers to get ahead.  No wonder the Rust Belt’s as angry as it said it was in 2016. Continue reading “Wondering Why Trump Loves Tariffs? Check Out Globalization’s Inequality Impact” →

How to Turn CRA into a Positive Force for Economic Equality

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By Karen Shaw Petrou

On January 10, the Wall Street Journal confirmed that Trump Administration regulators plan to advance the reforms to the Community Reinvestment Act (CRA) first outlined in a 2017 Treasury Department report.  The CRA dates backs to an era when progressive Democrats controlled federal financial regulation and is now a hallowed artifact of policy that progressives believe advances economic equality.  Community advocates and many Democrats will thus cry foul as this Trump Administration initiative begins.  Are they right?  Does the CRA really advance economic equality?  Continue reading “How to Turn CRA into a Positive Force for Economic Equality” →

Refi Madness

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By Karen Shaw Petrou

The ability of U.S. borrowers to refinance their residential mortgages may seem like a small matter when considering economic inequality, but it’s actually a critical question given the central importance of homes to wealth accumulation for all but the richest Americans.  Some have suggested that mortgage refinancings (refis) simply be banned for lower-income households to prevent wealth-destroying equity extraction, while others have claimed that refis not only promote home ownership and economic growth, but also validate the equality benefits of post-crisis monetary policy.  A new paper from the Federal Reserve Bank of Philadelphia demonstrates that refis aren’t economic equality curses or blessings – instead, they’re procyclical accelerants that put vulnerable borrowers at risk in booms when credit flows far too freely and that then excludes those most in need of lower-cost loans as post-crisis loans go only to the wealthiest households in the highest-priced homes.  Continue reading “Refi Madness” →