" Fed Governor Edward M. Gramlich gave a great talk on the subprime mortgage market. This market, which is relatively new but has grown sharply, deals with making loans to those that are seen as being high credits risks. On one hand these loans “created new opportunities for homeownership and has allowed previously credit-constrained homeowners to borrow against the equity in their homes to meet a variety of needs. At the same time, increased subprime lending has been associated with higher levels of delinquency, foreclosure, and, in some cases, abusive lending practices. On a social level, one question is whether the gains afforded by these new market developments outweigh the losses.” His answer? “Despite the caveats, the net social evaluation of these trends is probably a strong positive. The 9 million new homeowners, more than half of whom are minorities and many of whom have lower incomes, suggest that credit and ownership markets are democratizing. Millions of lower-income and minority households now have a chance to own homes and to build wealth; and the vast majority of these new homeowners do not appear to be having credit problems.”
http://www.federalreserve.gov/boarddocs/speeches/2004/20040521/
Uh, guess things didn't turn out quite the way we had expected. That said, even now I think the idea of opening financial markets to the poor is a good one, but clearly changes in the way these mortgages are marketed, sold, accounted for, and even how those selling them get paid must happen.
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