This WaPo story is long, but nonetheless incomplete.
Using court and land records, The Post analyzed 173 home purchases in Fairwood that wound up in foreclosure between 2006 and 2008.
In 43 of those home purchases, borrowers financed 100 percent of the cost of the home with loans that had high interest rates and reset periods within three years. The loans were of the type that Angelo Mozilo, the CEO of defunct subprime lending powerhouse Countrywide Financial, had called “toxic” because they offered such onerous terms. He warned his own company in internal e-mails that the loans were “the most dangerous product in existence.”
Nearly all the remaining loans The Post examined contained features associated with high default rates, such as low or no down payments, interest-only payment periods and higher rates than prime loans.
Only seven out of the 173 defaulters received the most favorable lending terms, known as conventional 30-year fixed interest rate loans. These “prime” loans are the least likely to fail, experts agree.
The neighborhood is described as primarily African-American, with a median income over $170,000.
Some questions that I have:
1. Why were so many loans made with zero down payment? If the median family income is that high, should there not have been higher down payments?
2. If the borrowers put nothing down to begin with, then foreclosure cost them nothing in terms of lost equity. Presumably, if they were affluent before, they are still affluent now. If not, why not?
3. Did anyone benefit from making these loans? The companies that ended up owning the mortgages took huge losses (taxpayers also may have been involved in some way, through bailouts). Companies that originated subprime loans but did not hold them (the “originate to distribute model”) picked up some small fees, but my guess is that they competed away a lot of profits by incurring marketing costs, and in any case enough of them went out of business that you can hardly envy their franchises.
4. When did borrowers start to fall behind on their payments? If it was within a year of buying the home, then you can be sure that even if the borrowers had gotten prime, thirty-year fixed rate loans they still would have defaulted.
Remember, it was the WaPo that said on January 1st that “narrative” is “out” and “facts” are “in.” Their story is instead all about narrative (the N-word, as I call it), and I think it could use more facts.