FRB: Federal Reserve Bank of Chicago - June 7, 2006 - Transcript

Building Sustainable Homeownership:
Responsible Lending and Informed Consumer Choice

Federal Reserve Bank of Chicago
230 South LaSalle Street, Chicago, Illinois 60604
June 7, 2006

Agenda | Transcript

Pages 1-25 | 26-50 | 51-75 | 76-100 | 101-125 | 126-150 | 151-175 | 176-200 | 201-225 | 226-250 | 251-267

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same. Obviously in terms of their provisions and	1	126
in terms of their impact. In some states they	2	126
passed laws that had virtually no impact on loan	3	126
origination. There are others that have had	4	126
serious declines in origination in subprime loans,	5	126
and in particular high priced loans. We have a	6	126
database that allows us to pinpoint a high price	7	126
loan as defined by that state law and look at the	8	126
volume of those loans before and after.	9	126
Let me make another comment, though,	10	126
to address some things that have been said here.	11	126
Let's begin -- I think the challenge to doing any	12	126
sorts of research on the effectiveness of these	13	126
laws has to grapple initially with the fundamental	14	126
problem. And that is that there is simply no	15	126
widely accepted and unambiguous definition of the	16	126
practices the laws are meant to curb. You may even	17	126
find a feature that you're going to proscribed, but	18	126
it's the abusive practice you want to get at.	19	126
Neither a high price nor the presence	20	126
of a prepayment penalty nor a balloon payment nor	21	126
an LTD in excess of 100 percent are evidence of a	22	126
predatory loan per se. For some borrowers, for	23	126
knowledgeable borrowers, those can be great tools	24	126
to get them into the financing they need. They	1	127
know exactly what they're getting into. For other	2	127
borrowers, like the stories we heard this morning,	3	127
they're completely inappropriate.	4	127
So if you can't designate a	5	127
particular term like a prepayment penalty as	6	127
predatory per se, that makes it very difficult not	7	127
only from a regulatory standpoint to protect the	8	127
consumers who need to be protected, but also to	9	127
facilitate lending in the market to those borrowers	10	127
who have legitimate needs. And it also challenges	11	127
researchers coming along after the fact to figure	12	127
out if the law had the intended effect.	13	127
If you look across a portfolio of a	14	127
million loans and try to identify those that are	15	127
unequivocally predatory, it's very difficult. I	16	127
would assert it's impossible to do that, to figure	17	127
out which loans given the features were a bad fit	18	127
for that borrower, unless you actually talk to the	19	127
borrower and get into details of the file. But we	20	127
can't do that as researchers, and most of the time	21	127
the regulators can't do that either.	22	127
A problem I have with studies that go	23	127
in and look just for a decline of the types of	24	127
loans that have the proscribed features is that	1	128
it's almost result by definition. If you think the	2	128
lenders are going to obey the law and they're not	3	128
going to make loans with the limited features, then	4	128
what else would you expect to see?	5	128
The real question is what happens to	6	128
the borrowers who don't get loans. Do they find	7	128
other alternatives? There seems to be an	8	128
assumption baked into these laws that somehow that	9	128
loan is going to get made, it's just not going to	10	128
have the objectional features in it. But I would	11	128
assert and our research tends to show that those	12	128
loans don't always get made and there are some	13	128
borrowers that are doing without. I don't think	14	128
there is nearly enough attention paid to all of	15	128
that.	16	128
My final point and then I will yield,	17	128
is essentially there is a cost to these pieces of	18	128
legislation depending on how stringent you make the	19	128
laws. And the cost is in loan opportunities that	20	128
never come about. And until you recognize that	21	128
cost, it's way to easy to pass a law that limits	22	128
one feature or another and then just drive on. And	23	128
even observe the fact that interest rates may fall	24	128
in the market because you've effectively cut out	1	129
the highest risk, highest rate borrowers that	2	129
happened to be getting those prior.	3	129
With that I will stop.	4	129
GOVERNOR OLSON: This is going to be a very	5	129
useful panel, as was the last one, because it's	6	129
going to help us understand exactly the issue that	7	129
we are confronting.	8	129
As I said earlier, the growth of the	9	129
mortgage market, the dissemination of risk exposure	10	129
in the mortgage market has had extraordinary	11	129
societal value and has been very positive on the	12	129
economy.	13	129
As I look around the room I don't see	14	129
many people that are those, if anybody, that will	15	129
remember, but there was a cartoonist in World War	16	129
II named Bill Malden. In fact I think he wrote for	17	129
the Chicago Trib, I think it was his home. He did	18	129
a great cartoon. Willy and Joe were his two	19	129
characters and they were sitting in a foxhole. And	20	129
one of them turned and said to the other, "The hell	21	129
this isn't the most important foxhole in the world,	22	129
I'm in it!"	23	129
And that's the dilemma, coming back	24	129
to the point we had had earlier. The fact that we	1	130
see extraordinary societal value, it doesn't erase	2	130
the fact that there is clear evidence of abuses.	3	130
But they are very difficult to specify and to	4	130
define, and therefore legislate.	5	130
I happen to be a person who believes	6	130
that there ought to be a very high threshold for	7	130
legislation and regulation. And so in order to	8	130
define that threshold, we need to have this kind of	9	130
an exchange that will help us understand the point	10	130
at which our regulation can be useful to get at the	11	130
issues that we want to get at without curbing where	12	130
it has real value.	13	130
Which brings me back initially to	14	130
this side of the table. And let me start with	15	130
Scott, because as we said earlier, the secondary	16	130
market has been so key. And there is -- the	17	130
secondary market has been, especially for the	18	130
nontraditional product, and to gain an	19	130
understanding of the manner in which the secondary	20	130
market values and prices risk.	21	130
So I think the points that you were	22	130
about to talk about before, we'd like to come back	23	130
to. And so you can give us an idea the manner in	24	130
which you assess ratings on the mortgage product.	1	131
And I assume that it is -- that you do it on a	2	131
tranche by tranche basis. Because I think that	3	131
will help us gain an understanding of perhaps where	4	131
that risk is embedded and how it's priced.	5	131
MR. MASON: Right. I mean, our primary concern	6	131
is protecting our ratings and the risk to the	7	131
investors in what they are investing in.	8	131
So when we take a look at	9	131
specifically these anti-predatory lending laws, our	10	131
number one concern is assigning liability. And we	11	131
look to assign liability and to see whether the	12	131
originator's bad acts will be passed through to any	13	131
purchaser of the mortgage.	14	131
Because a purchaser of a mortgage	15	131
essentially in our world in the secondary market,	16	131
at least in the securitization market, are	17	131
investors. They are the ones who are, you know,	18	131
funneling money back to mortgage originators in	19	131
order for the mortgage originators to lend to	20	131
borrowers. It looks like we are focused on the	21	131
subprime space here. Lend money to borrowers who	22	131
really need money.	23	131
Many times when we look at these	24	131
transactions, we do it on a loan-by-loan level.	1	132
However, we don't look into the specifics of the	2	132
borrower, other than to look at what their credit	3	132
rating is and what other characteristics there are	4	132
to the loan.	5	132
We do a loan-by-loan analysis of	6	132
about 75 particular aspects of a mortgage loan.	7	132
And when we look at that, we look to the propensity	8	132
of a particular loan to go into foreclosure and	9	132
what the loss may be on that one. And when we look	10	132
into those factors, we look to how this loan will	11	132
pay to a securitization trust.	12	132
So when we talk about anti-predatory	13	132
lending laws, it's crucial to understand what the	14	132
impact may be of assigning liability. And it's	15	132
very interesting when we talk about the North	16	132
Carolina laws being the first and then Georgia came	17	132
along. And quite frankly, we came out and said	18	132
with the original Georgia law, we don't understand	19	132
the law. It's hard for originators to understand	20	132
the law. Therefore, to say that this potential	21	132
liability should be off loaded to investors is	22	132
unacceptable to us, to Standard and Poor's. And we	23	132
could not rate deals that contained those types of	24	132
loans.	1	133
So I think it gets back to the point	2	133
of, you know, everyone needs to be very, very	3	133
conscious of the fact that these laws are meant to	4	133
protect borrowers. But you have to be careful of	5	133
the impacts on the secondary markets and how that	6	133
channels back to funding and the access to equity	7	133
of the separate laws.	8	133
GOVERNOR OLSON: Thank you. We have just been	9	133
joined by the President of the Chicago Fed, Mike	10	133
Moscow, who is here in shirt sleeves.	11	133
Mike, thank you for being our host	12	133
here today and I know you're a busy guy. We	13	133
appreciate the fact that you're here for some part	14	133
of the program, and it's good to see you.	15	133
Ken, build on that, now, from your	16	133
perspective with respect to the extent you see I	17	133
guess the development or direction of the MBS	18	133
marketplace.	19	133
There has been explosive growth. One	20	133
of the things that some of us have noticed, and you	21	133
would be particularly well poised to address this,	22	133
is that in an environment of a flat yield curve, it	23	133
does seem that for the investors that had been	24	133
typically playing the yield curve in one form or	1	134
another are now substituting a term premium for a	2	134
risk premium. And that that has moved people away	3	134
from other investments to maybe certain tranches	4	134
of MBS that have a high premium and perhaps without	5	134
the same evaluation to risk exposures.	6	134
MR. POSNER: So that's a question, of course,	7	134
that nobody can be privileged to know the answer to	8	134
in advance. But let me tell you a little bit	9	134
about -- or at least what I know about the capital	10	134
market, and how the capital market's appetite for	11	134
mortgages related to securities and how people may	12	134
be making those kinds of decisions.	13	134
I've got to tell you when subprime	14	134
mortgages are originated they are typically	15	134
packaged into a pool that may have, gosh, several	16	134
hundreds or several thousand different loans. And	17	134
these pools of loans are then securitized. Which	18	134
means it's put basically into a box and sliced and	19	134
diced and different securities come out with	20	134
different risk and return characteristics.	21	134
So for $100 million of subprime loans	22	134
put into a security, perhaps 80 million would come	23	134
out in the form of Triple A rated securities. So	24	134
securities where folks like Scott think that the	1	135
risk of loss to the investor is remote, even if	2	135
some of these people can't make their payments and	3	135
go into foreclosure. So the market for Triple A	4	135
securities, as I understand it, is global and	5	135
huge. So investors in Asia and Europe and the US,	6	135
the GSEs, Fannie-Maes and Freddie-Macs are big	7	135
buyers of those securities as well.	8	135
These securities have spreads of	9	135
around 40 basis point, which actually looks pretty	10	135
attractive compared to corporate rated Triple A	11	135
issuers like a GE where the spreads might be closer	12	135
to ten basis point. Assuming, of course, that	13	135
Scott and his folks have properly measured the risk	14	135
and they really are Triple A spread over	15	135
treasuries.	16	135
Now, that is the highly rated stuff.	17	135
At the other end of the spectrum something like 4	18	135
or $5 million of this $100 million would be unrated	19	135
and therefore the riskiest securities. These	20	135
securities are often called residuals or retained	21	135
interest. And if the borrowers can't pay, then	22	135
these securities get wiped out very quickly.	23	135
These securities have appeared to	24	135
have found a home in the hedge fund community. And	1	136
I'm told there are many hedge funds now, there are	2	136
thousands of hedge funds, and the market for these	3	136
kinds of securities is actually very deep.	4	136
Whether these are good investments or	5	136
not is a highly technical question and traders are	6	136
looking at very complex features in the deals. I'm	7	136
sure the smarter traders will make money in the	8	136
long term and some of the others won't. But	9	136
overall, our experts who study these markets think	10	136
that on average the capital markets are discounting	11	136
a slowing housing market and somewhat higher loss	12	136
rates, and that kind of outlook is appropriately	13	136
reflected in the prices of the securities across	14	136
the board.	15	136
GOVERNOR OLSON: Having spent a good part of my	16	136
life in Capital Hill, five years at Capital Hill,	17	136
one the key facts of life is that it takes only a	18	136
few -- it takes a significant risk exposure in	19	136
order to see the mortgage portfolios in the	20	136
broadest sense decline. But it only takes a	21	136
handful of abuses to generate legislation.	22	136
And I hope that what all of us would	23	136
like to do in the course of this is to deal with	24	136
these issues through adjustments to the HOEPA regs	1	137
or through our laws. Or more importantly, even	2	137
better, market behavior, and we can all avoid	3	137
legislation. Because at the federal level, that	4	137
tends to be the last option. I will have to say	5	137
that that is my personal opinion.	6	137
Anthony, getting on that, is there a	7	137
direction that we see with respect to the various	8	137
states in terms of how they are -- or is there a	9	137
direction that you can discern?	10	137
MR. PENNINGTON-CROSS: The short answer is no.	11	137
GOVERNOR OLSON: Okay.	12	137
MR. PENNINGTON-CROSS: Maybe Keith or one of	13	137
the other analysts can fill me in, but I've tried	14	137
to look for patterns of laws getting tougher or	15	137
weaker, and I saw no pattern. So I don't see the	16	137
direction of where it's going. But I know they all	17	137
start in North Carolina.	18	137
So I get calls in my office from	19	137
someone in banking regulatory down in Tennessee or	20	137
wherever they are, especially down in the Eighth	21	137
District, and they say what happens if we photocopy	22	137
North Carolina. So I think that's really the	23	137
starting point for most of these regulations.	24	137
MS. BRAUNSTEIN: I would like to ask just one	1	138
follow-up question, actually of Scott.	2	138
You talked a lot about how Standard	3	138
and Poor's looks at their loans, and in particular	4	138
the first thing they look at is the assignee	5	138
liability.	6	138
We heard this morning, from that side	7	138
of the room in fact, from the consumer side, that	8	138
that is a very important factor to them in terms of	9	138
protecting consumers. And I just wanted to get a	10	138
little more clarity from you on that.	11	138
Because one of the things I thought I	12	138
heard you say was that it was particularly	13	138
difficult if it wasn't clear as to which loans have	14	138
that liability and how that liability flows. But	15	138
if that was clarified, then it wasn't as big a	16	138
problem? Did I hear that correctly?	17	138
MR. MASON: The clarity of the loan types	18	138
covered and the clarity of the standards are very	19	138
important to our analysis of the impact on	20	138
secondary markets.	21	138
For example, New Jersey, and I don't	22	138
remember exactly when, but two years, three years	23	138
ago probably, came out with a law, and it was	24	138
somewhat unclear as to what constituted a home	1	139
loan. They had categories of home loan, covered	2	139
home loan, and high cost loan. It was somewhat	3	139
unclear as to what constituted those loans.	4	139
So the more clarity of which loans	5	139
are covered makes it easier for us, and for the	6	139
capital markets really, to understand what the	7	139
liability is. So that's where I was going with	8	139
that.	9	139
MS. BRAUNSTEIN: I just wanted to be clear	10	139
because I think that is an important lesson to	11	139
learn if you go down that road. The clarity part	12	139
is important.	13	139
MR. MASON: Right.	14	139
MS. BRAUNSTEIN: Okay.	15	139
GOVERNOR OLSON: Let me pose a question in a	16	139
slightly different way for any of you.	17	139
Is there an underlying presumption	18	139
that everyone is entitled to a mortgage loan? And	19	139
are we as a society doing a segment of the market a	20	139
disservice by making the loans readily accessible	21	139
for people who should probably not have a loan?	22	139
And if so, if in fact there are limitations, is	23	139
that a good thing?	24	139
MR. STATEN: I will just take a first stab at	1	140
that. How else do you answer that except to say	2	140
it's a judgment call? We live in a world where	3	140
"free to choose" is a revered statement. And	4	140
there are a lot of borrowers who find a way to make	5	140
ends meet out there who you wouldn't expect could	6	140
maybe handle a loan. And certainly one of the	7	140
things the subprime market, as it's evolved over	8	140
the last decade, has done is made it possible to	9	140
loan to just about everybody. Or at least they	10	140
have taken a shot at it.	11	140
I'm not here to argue that some of	12	140
those loans weren't inappropriate. They clearly	13	140
were. And I think many times borrowers under	14	140
estimate or are way too over optimistic about their	15	140
economic circumstances. Hence their willingness to	16	140
get into whatever loan it takes to get a low	17	140
payment and disregard the risk that goes up later.	18	140
We talked about that earlier this morning.	19	140
But I'm not here that putting a	20	140
ceiling on rates or putting a ceiling or a floor or	21	140
whatever you want to call it on FICO scores is the	22	140
best way to handle that problem. It doesn't allow	23	140
any sort of incentivizing of borrowers of findings	24	140
ways to make end meets. It doesn't accommodate the	1	141
prospects for improving their situation. That they	2	141
may have or private information on that that the	3	141
regulator certainly doesn't. It's a tough	4	141
business.	5	141
MR. ERNST: I would offer two responses to this	6	141
question. I think first it's fairly clear to me	7	141
that state policy makers and even federal policy	8	141
makers, when they implemented HOEPA, had some at	9	141
least implicit if not explicit recognition that	10	141
there are some loans in the marketplace, there are	11	141
some instances in which a borrower is harmed more	12	141
than helped by a transaction.	13	141
So what I think HOEPA and what the	14	141
anti-predatory lending laws have tried to do is not	15	141
in fact set a user ceiling, but they have said look	16	141
for loans when the rates get high enough, when the	17	141
incentives for an originator become powerful enough	18	141
and become tempting enough, there is a possibility	19	141
that the loan can be made on unhelpful terms. In	20	141
those instances, we want to introduce additional	21	141
protections.	22	141
For example, in North Carolina and	23	141
many of these states' laws once a loan passes a	24	141
certain threshold, once the incentive fees are high	1	142
enough, borrowers undergo counseling before they	2	142
enter transaction. With the thought being that	3	142
this counseling will provide the borrower with the	4	142
opportunity to have a reality check before they put	5	142
their home on the line. So I think in this case	6	142
and in many cases explicitly we have acknowledgment	7	142
from policy makers that we have some loans out	8	142
there that do more harm than good.	9	142
I think what is the touchstone, what	10	142
are some of the touchstones that are being drawn on	11	142
to make that determination? We had a lot of	12	142
discussions here today about failures of loans, and	13	142
I think that's one of the touchstones that is	14	142
looked to and one of the things that prompts	15	142
concerns.	16	142
I would just note we have had a lot	17	142
of conversations about serious delinquency rates	18	142
and cross sectional foreclosure rates. I think,	19	142
Roberto, your NC study on foreclosure showed that	20	142
fact when you looked at the 1999 retail set that	21	142
one in five subprime loans in a very large data set	22	142
actually went into foreclosure. So I think we	23	142
should think both about the ongoing rates that help	24	142
measure the success, the health and vitality of the	1	143
industry.	2	143
But we should also think about	3	143
longitudinal measures like that sort of analysis	4	143
that tells us what borrowers' experiences have	5	143
been. Because when we look at things through that	6	143
lens, we can perhaps understand some of what is	7	143
motivating policy makers to intervene.	8	143
MR. QUERCIA: I read in my closings about how	9	143
loans should be made, and I don't know how you	10	143
decide that, but I think there are so many loans	11	143
that are harmful.	12	143
I think the issue of over access to	13	143
credit for low income families in short term need	14	143
that is much more powerful, that they don't have	15	143
perspective. Now, for somebody coming in with low	16	143
monthly payment for two years, thinking, well, what	17	143
happened two years from now is beyond I think what	18	143
their consideration is, given the needs they	19	143
currently have.	20	143
So it seems to me that at a minimum,	21	143
counseling could help in that regard. Although	22	143
some of these mortgages, basically some of the more	23	143
creative ones, are more complex so that probably I	24	143
couldn't understand them.	1	144
So I think the industry is evolving	2	144
in a way that is providing many opportunities, as	3	144
it should, and I think it's fantastic. But the	4	144
downside to that is that these mortgages are so	5	144
complex that they are always going to read like	6	144
doing my own income tax. Some of these are too	7	144
complicated with somebody with kind of the average	8	144
intelligence to understand what they are signing.	9	144
GOVERNOR OLSON: Leonard or Alicia or Sandra?	10	144
MR. CHANIN: If I may ask a follow-up, at least	11	144
I think it's a follow-up. In most of the -- well,	12	144
certainly the federal trigger for HOEPA coverage is	13	144
based on rates or fees, and I understand a number	14	144
of states have a similar approach.	15	144
Just using the number that you gave	16	144
me, Anthony, 3 percent of whatever these particular	17	144
subprime loans were in default or 90 days late,	18	144
that means 97 percent were not though.	19	144
Has there been an analysis at the	20	144
transaction level or micro level of the particular	21	144
factors for, in your case that 3 percent, trying to	22	144
identify which types of loans in particular are	23	144
going to be more likely to go into default or at	24	144
least historically have done so. Which means if a	1	145
trigger uses a rate that's going to skip a number	2	145
of -- is going to sweep in a number of particularly	3	145
legitimate subprime loans as well as potentially	4	145
abusive loans.	5	145
But has there been a finer cut to	6	145
look at the data to see what particular transaction	7	145
information would correlate more with default rates	8	145
or 90 days late payment?	9	145
MR. QUERCIA: I can't talk about the study that	10	145
Keith mentioned. It's coming out in the economic	11	145
journal, so that my peers would obviously locate	12	145
it. But we found that in our study that prepayment	13	145
penalties for small loans and balloon payments	14	145
actually lead to higher risk of default. So even	15	145
controlling for other factors that create these	16	145
loan to value, since other people put into a	17	145
traditionally mortgage default.	18	145
The presence was highly correlative	19	145
with higher rates. And the key issue is which came	20	145
first, the chicken or the egg. But the issue is	21	145
these current rates are indeed basically immoral.	22	145
MR. PENNINGTON-CROSS: But I think the	23	145
literature on the duration and termination of	24	145
subprime loans, that the primary reasons that these	1	146
loans go under are the same things that drive prime	2	146
loans into foreclosure. That being people who	3	146
haven't been paying their credit cards in the past	4	146
are unlikely to pay their mortgage in the future.	5	146
So people with poor credit scores are likely to	6	146
fail as homeowners.	7	146
And one of the issues featuring	8	146
subprime is that a lot of loans that get into	9	146
trouble don't default, they actually prepay. So	10	146
when you become seriously delinquent and you have	11	146
been sitting in 90 days, there was discussion	12	146
earlier about forbearance. Lenders don't want to	13	146
default. And when you look at subprime data, you	14	146
can really see this, that these loans can hang	15	146
around for a year or two, 90-plus delinquent. This	16	146
is a lot of forbearance.	17	146
And these loans that hang around tend	18	146
to end up prepaying, not defaulting if there is any	19	146
equity in the house they can use. But generally	20	146
the foreclosures occur by having negative equity in	21	146
the home.	22	146
GOVERNOR OLSON: Prepaying in the sense they	23	146
are taken out by another lender?	24	146
MR. PENNINGTON-CROSS: Yes.	1	147
GOVERNOR OLSON: They are not prepaid out of	2	147
savings?	3	147
MR. PENNINGTON-CROSS: Right. So the loan is	4	147
being paid off. So that assumes that they found	5	147
another lender.	6	147
But that's the bad story. I think	7	147
the best thing about subprime is to get out of	8	147
subprime, right?. You had a problem, you needed	9	147
cash, you took cash out. You paid a premium to get	10	147
the loan. What you want to do is to prepay this	11	147
mortgage and get a cheaper rate, either move up the	12	147
price spectrum in subprime or even out. That is	13	147
the best case.	14	147
There is also the negative side.	15	147
You're having trouble, you're getting in more	16	147
trouble, so instead of moving up the pricing	17	147
spectrum there are folks who are moving down the	18	147
pricing spectrum. They get in trouble with	19	147
prepayments, I call them stress prepayments and	20	147
they have stressed the foreclosure, too. But	21	147
primary drivers of foreclosures are not having	22	147
equity, having a poor credit history, and having an	23	147
economic event.	24	147
MR. CHANIN: Let me follow up on that. Is	1	148
there evidence that those consumers that have	2	148
refinanced, are they ultimately ending up with	3	148
foreclosure with a higher level of debt, less	4	148
equity in their home, or are they getting out of	5	148
debt?	6	148
MR. PENNINGTON-CROSS: Maybe someone else can	7	148
help. But the one sitting -- this is my own, of	8	148
course, we look at the refinance loan, so loans	9	148
that get refinanced. So we see actually that those	10	148
loans were performing quite well. In fact, better	11	148
than the purchase loans once you control for all of	12	148
the factors like down payments and product type.	13	148
So we didn't find any evidence of that.	14	148
But I haven't seen any true	15	148
longitudinal studies, and I'm trying to think about	16	148
finding data sources that you can follow the	17	148
household through time to see the actually event	18	148
entering and exiting to see this path of clearing	19	148
or path of failure. I haven't seen anything like	20	148
that.	21	148
MR. ERNST: Maybe I will come back to that	22	148
point. But the point I wanted to touch on is I	23	148
think one of the things that we are meeting with a	24	148
backup behind us is that we have had phenomenal	1	149
growth in the subprime market over the years, even	2	149
as states grow more and more protected.	3	149
This growth had gone from a virtual	4	149
blip to more than half a trillion dollars today.	5	149
And I think -- and it's not only fast growth I	6	149
think by any measure. So I think one of the things	7	149
we think about is, I think, while Anthony is right,	8	149
when you look at what drives foreclosure, I think	9	149
we all have to pay some attention and I think	10	149
federal regulators have paid some attention to the	11	149
question of underwriting here and suitability of	12	149
loans that are being offered to borrowers.	13	149
I think the foreclosure rates are	14	149
high on a longitudinal, that one in five figure	15	149
that I cited I think should tell us or should raise	16	149
some concerns, and I think it rightly does. That	17	149
maybe the underwriting and the loan products that	18	149
are offered to borrowers are not quite at the level	19	149
where we would want them to be. So I think it's	20	149
more than just purely inherent borrowers'	21	149
characteristics here.	22	149
GOVERNOR OLSON: Alicia, you wanted to ask a	23	149
question.	24	149
MS. WILLIAMS: Well, I don't want to take it	1	150
off point.	2	150
GOVERNOR OLSON: Go ahead.	3	150
MS. WILLIAMS: I had a couple, but since you	4	150
mentioned the fact that this industry has pretty	5	150
much grown significantly over time, and I think a	6	150
lot of us would agree with that, and then there are	7	150
those that will say, too, we have seen an increase	8	150
in exposure and foreclosures going up in many	9	150
cities and we have several in our district that	10	150
really have very high foreclosures.	11	150
And so I guess the question that I	12	150
would ask, because as we were talking about	13	150
research, I heard Michael say that, well, we don't	14	150
have a common definition and we may be looking at	15	150
components. And earlier this morning there were	16	150
comments made, well, you know you should look at	17	150
this prepayment, you should look at the single	18	150
yield, single premiums, do more research.	19	150
So I guess the question is -- and	20	150
then there is always this question of, well, can	21	150
you get your hands on the data. And now we have 26	22	150
states that have implemented regulations and we are	23	150
saying we can't really find a pattern.	24	150

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Pages 1-25 | 26-50 | 51-75 | 76-100 | 101-125 | 126-150 | 151-175 | 176-200 | 201-225 | 226-250 | 251-267

2006 Hearings

Building Sustainable Homeownership: Responsible Lending and Informed Consumer Choice

Federal Reserve Bank of Chicago 230 South LaSalle Street, Chicago, Illinois 60604 June 7, 2006

Building Sustainable Homeownership:
Responsible Lending and Informed Consumer Choice

Federal Reserve Bank of Chicago
230 South LaSalle Street, Chicago, Illinois 60604
June 7, 2006