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Monday, December 01, 2008



Excellent post and commentary.


Excellent post and commentary.

Alan White

The context in which Goolsbee wrote in early 2007 was the federal regulators' proposed guidance on nontraditional mortgages. The FFIEC agencies were proposing to require that mortgages with escalating payments, prevalent in the subprime and alt-A space, be underwritten so as to establish the homeowner's ability repay not just the initial payment but the escalating payments over the term of the loan. Countrywide and other lenders vehemently opposed the guidance on the basis that it would dry up mortgage lending (true, but hardly an argument against the kind of lending that was going on in 2007.) Goolsbee called these mortgages innovative and beneficial, when it was clear even then that they were resulting in high rates of foreclosure, not homeownership. The rating agencies now project that 50% or more of 2006 and 2007 subprime mortgages will result in foreclosure. The federal agencies went ahead with the guidance, and the Fed eventually published its HOEPA rule. Those very modest steps at reining in irresponsible mortgage lending were the only proposals on the table, and Goolsbee was objecting, based on factually incorrect (and, I would argue, ideological) assumptions about the effects of subprime lending on minority homeownership.

I'm not opposed to hiring pragmatic moderates, but it would be nice to include perhaps just one bona fide liberal or progressive economist to provide a bit of diversity, without the need for any extreme ideologues.

Steve Daily

I read the Austan Goolsbee piece, and am straining to understand what could possibly be considered "wretched" about it. In sum,
Goolsbee argued for caution in changing subprime mortgage regulations, because he was concerned that excessive or ill-considered
"reforms" could hurt minorities and low-income individuals. His piece was not a "warning against regulation of subprime mortgages," as you describe it, but rather a warning against excessive and ill-considered new regulations that could have unintended consequences harming the disadvantaged. Who could take exception to that?

And when was Goolsbee's advice "rejected" by the Federal Reserve? As Chairman Bernanke wrote a few months later regarding the Fed's proposed amendments to the rules under the Home Ownership and Equity Protection Act, "The Board is responding to these problems [fraud, deception, and unfairness in the mortgage market] with proposed rules that were carefully crafted with an eye toward deterring improper lending and advertising practices without unduly restricting mortgage credit availability."

For President-Elect Obama, it seems so far that "change" means hiring pragmatic moderates rather than extreme ideologues. Some on the left are bound to be disappointed, but that is no reason to distort the record of Austan Goolsbee.

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