Moving Forward: The Future of Consumer Credit and Mortgage Finance (James A. Johnson Metro Series) - Softcover

Softcover

ISBN 10: 0815705034 ISBN 13: 9780815705031

Verlag: Brookings Institution Press, 2011

Inhaltsangabe

The recent collapse of the mortgage market revealed fractures in the credit market that have deep roots in the system's structure, conduct, and regulation. The time has come for a clear-eyed assessment of what happened and how the system should be strengthened and restructured. Such reform will have a profound and lasting impact on the capacity of Americans to use credit to build assets and finance consumption.
Moving Forward explores what caused the crisis and, more important, focuses on the path ahead. The challenge remains the same as ever: protect consumers, ensure fairness, and guarantee soundness of the financial system without stifling innovation and overly restricting access to credit and consumer choice. Nicolas Retsinas, Eric Belsky, and their colleagues aim to stimulate debate based on analysis of the opportunities and challenges presented by the various components of global capital markets: financial engineering, risk assessment and management, specialization of financial intermediation, and marketing methods. The contributors—leaders in business, government, academia, and the nonprofit sector—discuss new research and ideas about the future of credit markets, including how improvements might be shaped by industry leaders.
Contributors: John Y. Campbell, Harvard University; Marsha J. Courchane, Charles River Associates; Ren Essene, Federal Reserve Board; Allen Fishbein, Federal Reserve Board; Howell E. Jackson, Harvard Law School; Melissa Koide, Center for Financial Services Innovation; Michael Lea, San Diego State University; Eugene Ludwig, Promontory Financial Group; Brigitte C. Madrian, Harvard Kennedy School; Nela Richardson, Joint Center for Housing Studies of Harvard University; Rachel Schneider, Center for Financial Services Innovation; Peter Tufano, Harvard Business School; Peter M. Zorn, Freddie Mac

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Über die Autorinnen und Autoren

Nicolas P. Retsinas is director of Harvard University's Joint Center for Housing Studies and a Senior Lecturer in Real Estate at the Harvard Business School.

Eric S. Belsky is managing director of the Joint Center for Housing Studies of Harvard University and lecturer in urban planning and design at the Harvard Graduate School of Design. Together Retsinas and Belsky have edited four previous books copublished by the Joint Center and the Brookings Institution Press.

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Moving Forward

The Future of Consumer Credit and Mortgage Finance

Brookings Institution Press

Copyright © 2011 THE BROOKINGS INSTITUTION
All right reserved.
ISBN: 978-0-8157-0503-1

Contents

Acknowledgments............................................................................................................................................................................................viiIntroduction: Credit Everywhere, but Not a Drop to Drink Nicolas P. Retsinas and Eric S. Belsky...........................................................................................................1Comment: Seven Steps to a Rational Credit Policy Eugene Ludwig............................................................................................................................................61 Rebuilding the Housing Finance System after the Boom and Bust in Nonprime Mortgage Lending Eric S. Belsky and Nela Richardson...........................................................................92 How Should We Serve the Short-Term Credit Needs of Low-Income Consumers? Rachel Schneider and Melissa Koide.............................................................................................613 A Changing Credit Environment and Its Impact on Low-Income and Minority Borrowers and Communities Marsha J. Courchane and Peter M. Zorn.................................................................864 Alternative Forms of Mortgage Finance: What Can We Learn from Other Countries? Michael Lea..............................................................................................................1185 The Home Mortgage Disclosure Act at Thirty-Five: Past History, Current Issues Allen Fishbein and Ren Essene.............................................................................................1506 Loan-Level Disclosure in Securitization Transactions: A Problem with Three Dimensions Howell E. Jackson.................................................................................................1897 The Regulation of Consumer Financial Products: An Introductory Essay with a Case Study on Payday Lending John Y. Campbell, Howell E. Jackson, Brigitte C. Madrian, and Peter Tufano.....................206Contributors...............................................................................................................................................................................................245Index......................................................................................................................................................................................................247

Chapter One

Rebuilding the Housing Finance System after the Boom and Bust in Nonprime Mortgage Lending

ERIC S. BELSKY AND NELA RICHARDSON

The cycle of boom and bust in nonprime and nontraditional mortgage lending in the United States is without precedent. The factors that fueled the boom and the way it unfolded sowed the seeds for the bust that, in hindsight, appears to have been inevitable. The amount of risk in the system ballooned as a result of changes in lending practices. At the same time that credit was opened up to borrowers who previously had been denied loans because of past problems repaying their debts, many other underwriting standards were loosened. In addition, products with heavy payment reset risks proliferated in both the prime and nonprime markets. This layering of risk at or near the peak of an overheated housing market proved very deleterious to loan performance.

Yet few predicted that performance in the nonprime mortgage market and the way these loans were packaged, sold, and referenced in the global capital markets would cause a loss of investor confidence so profound that it would spark a severe global financial crisis. It was not until August 2007 that the Federal Reserve decided that the rapidly eroding performance of subprime mortgage loans—and evaporating demand for the securities they backed—was enough of a threat to the broader economy to warrant easing monetary policy. In an unusual move, the Fed lowered the discount rate for borrowing from the Federal Reserve in between regularly scheduled meetings of the Federal Open Market Committee. Although the committee held the more important federal funds rate target constant until its September meeting, lowering the discount rate signaled both its concern and willingness to take action to contain the damage from the deteriorating subprime residential mortgage market.

These interventions would prove inadequate. A little more than a year later, and within the span of less than two weeks, the government helped to rescue Bear Stearns and Merrill Lynch from collapse, allowed Lehman Brothers to fail, and bailed out insurance giant AIG. Credit markets froze nearly solid in the fall of 2008, the stock market went into a freefall, and job losses accelerated sharply. The interconnectedness of the global financial system became apparent as problems emanating from residential debt in the United States and in the derivatives used to hedge and trade mortgage risk prompted a global credit crisis.

Uncovering the causes of the nonprime boom and bust is essential to formulating effective government and business responses to the crisis. At stake are not only the safety and soundness of the financial system the next time that excess global liquidity creates pressure to relax underwriting standards and raise leverage, but also the access that Americans will have to mortgage credit, on what terms, and at what cost. Access to mortgage credit is vital to building assets through homeownership and opens up avenues to finance consumption and investment on terms that are generally more favorable than those for consumer credit. Government cannot easily back away from it without risking great economic dislocations. Especially at a time when the share of U.S. households with credit problems has soared, how credit-impaired borrowers are treated will shape asset-building opportunities during the next economic expansion for millions of Americans. And while the recent housing bust has underscored the risky nature of investing in residential real estate, it also has created the conditions—ratios of house price to income in some locations at or near lows not seen since the early 1990s—that could make homeownership very attractive for years to come.

Understanding the boom and bust in nonprime and nontraditional lending first requires a brief discussion of the evolution of the housing finance system in the United States from the 1970s onward.

Evolution of the Modern U.S. Housing Finance System

Throughout the 1970s, 1980s, and 1990s, mortgage lending was conducted with a limited number of mortgage products that dominated the market and were underwritten, with few exceptions, to long-accepted common standards. These relatively stringent underwriting criteria formed the backbone of a single "prime" market in which credit was allocated by adhering to these tight standards and charging all who were able to qualify for mortgages a similar interest rate. Only loans with higher ratios of loan to value commonly incurred the additional payment of a private or government mortgage insurance premium to offset the greater risk associated with lower-down-payment lending. As such, the system of credit allocation was considered a rationing system rather than a risk-based pricing system. This began to change around the early to middle 1990s, when—haltingly at first—individuals with previous problems repaying their debts were allowed to qualify for a loan but...

Details zur Ausgabe

• Verlag: Brookings Institution Press
• Erscheinungsdatum: 2011
• Sprache: Englisch
• ISBN 10: 0815705034
• ISBN 13: 9780815705031
• Einband: Taschenbuch
• Anzahl der Seiten: 274
• Herausgeber: Retsinas Nicolas P., Belsky Eric S.
• Kontakt zum Hersteller: Nicht verfügbar
• Verantwortliche Person: gpsr@libri.de; gpsr@libri.de; ; Friedensallee 273; Hamburg; 22763; Deutschland