You stated, "Between 2007 and 2009, lending to the bottom half of the American housing market imploded and never returned. The federal agencies abandoned their existing customer base and regulators forced even stricter standards on banks."
I used GPT-4 to try to pin down exactly what regulatory changes took place in these years, since they predate Dodd-Frank. Is your take is that the 2006 Interagency Guidance on Nontraditional Mortgage Product Risks and the 2007 Statement on Subprime Mortgage Lending--as well as the Federal Reserve's modifications to Regulation Z first announced in 2007 and implemented in 2008-2009--are basically under-discussed here? What other specific regulatory changes are you considering?
Yes. I think you're right. The 2006 guidance on nontraditional mortgage product risks probably did hasten the end of the private securitization market, and the effects of that probably played out by the end of 2007. I suspect that the Regulation Z modifications were a big part of the problem, and the effects can be seen throughout the US in home price trends from the beginning of 2008 through 2009. Private lending with any default risk basically disappeared, and it was greatly curtailed at the GSE's and FHA.
I used to attribute more of the suppression to Dodd-Frank, and there are 2 waves of low-tier home price declines in 2008 and then in 2010 when Dodd-Frank passed. But, there was also a generous first-time homebuyer credit that expired about when Dodd-Frank passed. So, it is hard to differentiate whether the credit temporarily halted the price collapse or if Dodd-Frank specifically created more damage.
So many changes were implemented, and underwriting changes within those institutions could also change in ways that are hard to document, that I don't know if someone could ever parse out exactly what regulations created the largest obstacles to lending. I tend to limit myself to a macro-level analysis on this. Average credit scores in general and within the GSEs shot up in 2008, the prices of homes no longer served by lenders collapsed at the same time.
SO many resources have been applied to quantifying the effects of credit access before 2007, it's really a shame that so little has been directed to the changes in 2007 and after. The effects were extreme. There should have been dozens if not hundreds of papers on it.
Why not much research into the impact of tightened lending standards after 2007? Well, because it was such a great success; a smashing victory against the forces of profligacy, greed, and excess that once imperiled the moral fiber of our great banking institutions and standards of our nation. Now mortgages are reserved for the most virtuous, patient, disciplined, and well-heeled amongst us. Now, if we could just find a way to cut off lending to these money grubbing developers throwing up large apartment buildings hither and yon....
You stated, "Between 2007 and 2009, lending to the bottom half of the American housing market imploded and never returned. The federal agencies abandoned their existing customer base and regulators forced even stricter standards on banks."
I used GPT-4 to try to pin down exactly what regulatory changes took place in these years, since they predate Dodd-Frank. Is your take is that the 2006 Interagency Guidance on Nontraditional Mortgage Product Risks and the 2007 Statement on Subprime Mortgage Lending--as well as the Federal Reserve's modifications to Regulation Z first announced in 2007 and implemented in 2008-2009--are basically under-discussed here? What other specific regulatory changes are you considering?
Yes. I think you're right. The 2006 guidance on nontraditional mortgage product risks probably did hasten the end of the private securitization market, and the effects of that probably played out by the end of 2007. I suspect that the Regulation Z modifications were a big part of the problem, and the effects can be seen throughout the US in home price trends from the beginning of 2008 through 2009. Private lending with any default risk basically disappeared, and it was greatly curtailed at the GSE's and FHA.
I used to attribute more of the suppression to Dodd-Frank, and there are 2 waves of low-tier home price declines in 2008 and then in 2010 when Dodd-Frank passed. But, there was also a generous first-time homebuyer credit that expired about when Dodd-Frank passed. So, it is hard to differentiate whether the credit temporarily halted the price collapse or if Dodd-Frank specifically created more damage.
So many changes were implemented, and underwriting changes within those institutions could also change in ways that are hard to document, that I don't know if someone could ever parse out exactly what regulations created the largest obstacles to lending. I tend to limit myself to a macro-level analysis on this. Average credit scores in general and within the GSEs shot up in 2008, the prices of homes no longer served by lenders collapsed at the same time.
SO many resources have been applied to quantifying the effects of credit access before 2007, it's really a shame that so little has been directed to the changes in 2007 and after. The effects were extreme. There should have been dozens if not hundreds of papers on it.
Why not much research into the impact of tightened lending standards after 2007? Well, because it was such a great success; a smashing victory against the forces of profligacy, greed, and excess that once imperiled the moral fiber of our great banking institutions and standards of our nation. Now mortgages are reserved for the most virtuous, patient, disciplined, and well-heeled amongst us. Now, if we could just find a way to cut off lending to these money grubbing developers throwing up large apartment buildings hither and yon....