Faulty Conclusions Based on Shoddy Foundations

8/7/2019 Faulty Conclusions Based on Shoddy Foundations

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Faulty Conclusions Basedon Shoddy FoundationsFCIC Commissioner Peter Wallison and Other Commentators Ron Flawed Data from Edward Pinto to Misplace the Causes of th2008 Financial Crisis

David Min February 2011


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Faulty Conclusions Based onShoddy FoundationsFCIC Commissioner Peter Wallison and OtherCommentators Rely on Flawed Data from Edward Pintoto Misplace the Causes of the 2008 Financial Crisis

David Min February 2011



1 c t a P g ss | u ty c us s B s S y u t s

Introduction and summary

Te congressionally appoin ed and bipar isan Financial Crisis Inquiry Commissionlas mon h released i s nal repor on he causes o he U.S. nancial crises in

he rs decade o he 21s cen ury.1 Tis care ully researched repor provides a balanced and hough ul explana ion o he causes o he recen nancial crisis, blaming a range o policies implemen ed by bo h he Clin on adminis ra ion and

he Bush adminis ra ion. Like he previous s a repor s issued by he FCIC, hisnal repor is excellen and well wor h reading.2

Alas, his nal repor was issued only by a majori y o he FCIC members, as heminori y members released a dissen ha concluded a narrower se o issues,including ederal a ordable housing policies, were he driving cause behind he

nancial crisis.3 No ably, FCIC minori y member Pe er Wallison, a senior ellow ahe American En erprise Ins i u e, a conserva ive hink ank based in Washing on,

D.C., issued his own separa e dissen .4 Based on work done by his AEI colleagueEdward Pin o, Wallison concludes ederal a ordable housing policies were

he driving cause behind he nancial crisis, causing a decline in underwri ings andards ha riggered he U.S. housing bubble.5

Wallison’s conclusion ha a ordable housing policies were he proxima e causeo he nancial crisis is in egrally based on he claim ha “[a]s a resul o [U.S.governmen housing] policies, by he middle o 2007, here were approxima ely 27 million subprime and Al -A mor gages in he U.S. nancial sys em—hal o allmor gages ou s anding—wi h an aggrega e value o over $4.5 rillion.”6 How doesPin o come o hese conclusions? Wallison succinc ly summarizes Pin o’s ndingsin a January 3, 2011, Wall S ree Journal op-ed:

By 2008 hal o all mortgages in the U.S.—27 million—were subprime and other high-risk loans. … Because o their a ordable-housing requirements, [Fannie Maeand Freddie Mac] bore the risk o de ault on 12 million o these mortgages. TeFederal Housing Administration (FHA) and other government agencies insuredor held an additional fve million. And banks under the Community Reinvestment Act, and other mortgage providers under a Department o Housing and Urban




Development program, made another 2.2 million. Tus, more than 19 millionsubprime loans [out o 55 million total outstanding loans] were the responsibilityo taxpayers, courtesy o the ederal government’s housing policies.7

As Wallison clearly indica es in his FCIC dissen , all o he da a on he number o

ou s anding subprime and Al -A mor gages ou s anding, and heir dis ribu ion,ha he relies on o orm his conclusions come rom Pin o’s research.8 Pin o’sndings also were widely circula ed among he public and key policymakers.9

Pin o’s work also is ci ed by prominen conserva ives, including U.C. Berkeley HaasBusiness School Pro essor Dwigh Ja ee, New York Universi y Pro essor Lawrence J. Whi e, Columbia Business School Pro essor Charles Calomiris, Ca o Ins i u eSenior Fellow ichard ahn, and eu ers columnis James Pe hokoukis.10

Un or una ely, Pin o’s research ndings relied upon so heavily by Wallisonand o hers are alse. Pin o’s work is based on a series o aul y assump ions

and serious me hodological aws. Pin o’s con roversial conclusion ha ederalhousing policies were responsible or 19 million high-risk mor gages is based onradically revised de ni ions or he wo main ca egories o high-risk mor gages,subprime loans and so-called Al -A mor gages, which re er o loans wi h low documen a ion o income and weal h. Impor an ly, hese revised de ni ionsare no consis en wi h how he erms subprime and Al -A are used or da acollec ion, as his paper will demons ra e.

As a resul o his drama ically expanded new de ni ions ha are no used by o herleading scholars, Pin o’s ndings on he ex en o subprime and Al -A exposure areex reme ou liers among mor gage marke analys s. Pin o’s claim ha here were26.7 million subprime and Al -A loans ou s anding (ou o roughly 55 million

o al) as o June 30, 2008, is exponen ially higher han o her es ima es. In a 2010repor , he nonpar isan Governmen Accoun abili y O ce, he research armo Congress, ound here were only 4.58 million subprime and Al -A mor gagesou s anding a he end o 2009, less han one- fh o Pin o’s es ima e.11

Similarly, Pin o’s claim ha 19 million, or 72 percen o all “subprime” and “Al -A”mor gages were atribu able o ederal a ordable housing policies is ar a eld o he

conclusions o o her analys s. Te claim is also di cul o reconcile wi h he ac ualda a, which indica e he en ire ederal governmen (including Fannie and Freddie)owned or guaran eed only 32 percen o seriously delinquen loans despi eholding 67 percen o all mor gages.12 Pin o’s claim ha Fannie and Freddie were

he primary driver o high-risk mor gages does no s and when he evidence is weighed accura ely.




Because o Pin o’s anomalous ndings, Wallison largely elides over he roleo so-called “priva e-label” mor gage-backed securi ies in causing he crisisdespi e he large amoun o aten ion hese nancial ins rumen s receivedelsewhere, including in he FCIC majori y’s repor .1 3 Tis priva e mor gage

nancing channel, which does no involve he ederal governmen a all and was

policed only minimally, genera ed only 13 percen o ou s anding loans bu wasresponsible or 42 percen o serious delinquencies.1 4

Pin o makes numerous o her serious errors in his analysis. Case in poin :In analyzing he in uence o he Communi y einves men Ac , a 1977an idiscrimina ion law ha simply requires regula ed banks and hrifs o lendnondiscrimina orily o low- and modera e-income borrowers and communi ies wi hin he immedia e geographic areas surrounding branch o ces o a deposi -

aking ins i u ion,1 5 Pin o includes a large quan i y o loans ha were no required by CR or any o her equivalen law or regula ion.16 Tis mis ake, coupled wi h

some unsuppor ed assump ions abou he riskiness o CR loans, producesa shockingly high es ima e o 2.24 million “subprime” and “high-risk” loansatribu able o CR. Tis compares o a nding o 378,000 CR-eligible loansorigina ed during he housing bubble by o her leading researchers.1 7

Pin o also wrongly blames he a ordable housing goals o Fannie and Freddieor he origina ion o Al -A loans, which under his analysis accoun or 65% o he “high risk” mor gages atribu able o Fannie and Freddie. In ac , hese Al -A

loans (ei her according o he normal usage o “Al -A” or Pin o’s newly inven edde ni ion o “Al -A”) would no have quali ed or he a ordable housing goals.

As his paper will demons ra e, hese and many o her similar me hodologicalaws are undamen ally embedded in Pin o’s research, making his conclusionsundamen ally unreliable and essen ially useless or he purpose o unders anding

ei her he causes o he housing bubble or he high ra es o delinquencies ha haveoccurred during he housing down urn. Ye based in large par on he inaccura eand misleading da a peddled by Pin o, many policymakers are advoca ing inapand ofen coun erproduc ive solu ions o he nancial crisis.

Tis paper is designed o se he record s raigh on he ollowing speci c claims by Pin o ha are ei her wrong or grossly dis or ed, and o highligh he ex remely shaky ounda ion or he argumen ound in Wallison’s FCIC dissen ha ederala ordable housing policies caused he nancial crisis.




Pinto’s claims about high-risk mortgages

Pinto claims that 26.7 million outstanding loans are subprimeor Alt-A, and that 72 percent of these are attributable to thefederal government

Te argumen pu or h in Pe er Wallison’s dissen is cri ically based on heollowing ndings o Edward Pin o. Firs , ha as o June 30, 2008, here were

26.7 million subprime and Al -A mor gages ou s anding (ou o 55 million o al

mor gages). And second, ha 19.252 million o hese were he responsibili y o Fannie Mae, Freddie Mac, he Communi y einves men Ac , and o her ederalprograms designed o boos a ordable housing.18

Tese wo ndings are he main ounda ion or Wallison’s overall argumen hai was he governmen ’s a ordable housing policies—ra her han awed risk managemen and regula ory lapses across he nancial sys em— ha caused heglobal nancial crisis.19

Pinto’s estimate that there are 26.7 million outstanding subprimeand Alt-A loans is atypical

Pin o’s es ima e ha here are 26.7 million subprime and Al -A loans ou s anding(roughly hal o all ou s anding loans) is an enormous ou lier among analys s.20 Tenonpar isan Governmen Accoun abili y O ce ound ha as o December 31,2009, here were only 4.58 million ou s anding subprime and Al -A loans ou o roughly 55 million o al loans.2 1 In o her words, Pin o’s es ima e o subprime and Al -A exposure hroughou he mor gage sys em is more han ve imes grea er

han he GAO’s es ima e.




Table 1

Pinto’s misplaced calculations

Pinto’s presentation of federal government or federal agencycontributions to subprime and Alt-A mortgage exposure as of June 30, 2008

Table or sectionwith detail

Subprime andAlt-A loans $ in billions Number of

in millio

Table 2 Fannie $1,077 7.026

Table 3 Freddie $758 4.913

Section E FHA/VA/Rural housing $537 4.7

Section F FHLB $50 0.31

Section GCRA and HUD program

loans$312 2.24

Total federal contributionto subprime and Alt-A

$2,734 19.252

Total subprime and Alt-A $4,622 26.7

Source: Edward J. Pinto, “Sizing Total Federal Government and Federal Agency Contributions to SubpriAlt-A Loans in U.S. First Mortgage Market as of 6.30.08,” Exhibit 2, p. 4.

Pinto’s claim that half of all mortgages are “high risk” does notcorrespond with mortgage delinquency data

As hen-Federal Housing Finance Agency Direc or James Lockhar no ed, as o March 31, 2009, here were roughly 55 million o al mor gages ou s anding, o

which only 3.9 million (7 percen ) were in serious delinquency.2 2

Given ha weexperienced a 30 percen peak- o- rough na ional home price drop amid persis en ly high unemploymen , a 7 percen delinquency ra e appears o be comple ely inconsis en wi h Pin o’s claim ha hal o all mor gages are “high risk.”2 3

Pinto’s finding that 72 percent of all “high-risk” mortgages areattributable to the federal government is inconsistent with theactual distribution of delinquent loans

Pin o claims ha o he 26.7 million “subprime” and “Al -A” loans ou s anding,19.252 million o hem—72 percen —were held, guaran eed, or (in he caseo he Communi y einves men Ac ) required by governmen en i ies orpolicies, including Fannie Mae, Freddie Mac, Ginnie Mae, and he FederalHousing Adminis ra ion.2 4

Bu as FHFA Direc or Lockhar poin s ou , o he 3.9 million loans in serious delinquency as

o March 31, 2009, only 32 percen o seriously delinquen loans were atribu able o he ederalgovernmen , despi e he ac ha he ederalgovernmen owned or guaran eed 67 percen o all ou s anding mor gages.2 5 I he governmen

ruly held hree-quar ers o all high-risk mor gages, one would expec o see i s share o mor gage delinquencies a a roughly equivalenlevel. Conversely, priva e-label securi iza ion, which Wallison and Pin o essen ially ignore, was responsible or 42 percen o all serious

delinquencies, despi e only genera ing13 percen o all ou s anding loans. Tese da aappear o clearly con radic he ndings o Pin o and Wallison.




Taking a closer look at Pinto’s numbers

How do Wallison and Pin o arrive a he conclusion ha here are 26.7 millionou s anding subprime and Al -A loans, o which 19.252 million are atribu able o

he ederal governmen ? able 1 illus ra es Pin o’s dis ribu ion o subprime and Al -A loans.

According o Pin o’s calcula ions, 11.939 million subprime and Al -A loans(44.7 percen ) are atribu able o Fannie Mae and Freddie Mac; 4.760 million

(17.8 percen ) are atribu able o he Federal Housing Adminis ra ion, heDepar men o Ve erans A airs, and ural Housing programs; 0.313 million areatribu able o he Federal Home Loan Banks (1.2 percen ); 2.24 million areatribu able o he Communi y einves men Ac and an analogous program a heDepar men o Housing and Urban Developmen (8.4 percen ); and he remainder,7.448 million (27.9 percen ), are atribu able o nongovernmen al sources.2 6

Le ’s delve in o each o hese claims in urn.

Pinto claims that 11.939 million subprime and Alt-A mortgagesare attributable to the affordable housing goals of Fannie Mae andFreddie Mac

One o he mos con roversial (and mos ci ed) aspec s o Pin o’s research, whichis a major pillar o Wallison’s FCIC dissen , is he conclusion ha because o

heir a ordable housing requiremen s, Fannie Mae and Freddie Mac, as o June30, 2008, held or guaran eed a o al o $1.835 rillion (approxima ely 12 millionloans) in subprime and Al -A loans.27

In ac , hese eye-popping claims abou he ex en o which Fannie and Freddieheld subprime and Al -A exposure are based on he inclusion o a high numbero loans ha are no ca egorized as ei her subprime or Al -A, bu which allins ead in o ca egories inven ed by Pin o—“subprime by charac eris ic” and“Al -A by charac eris ic.”28




Pinto’s invented definitions for “subprime” and “Alt-A” are starklyinconsistent with how those terms are actually used in data research

Pin o crea es new de ni ions or he erms “subprime” and “Al -A,” based onhe claim ha exis ing classi ca ions inadequa ely cap ure he “objec ive risk

charac eris ics” o “subprime” and “Al -A” mor gages. Whe her or no Pin o’scri icism is accura e, his newly inven ed de ni ions are o ally inconsis en wi hhow he erms “subprime” and “Al -A” are ac ually used in any research e or s,par icularly when i comes o loan per ormance.29

According o Pin o’s analysis, $1.146 rillion—62.5 percen —o he “subprime”and “Al -A” loans he claims are atribu able o Fannie and Freddie are no ac ually subprime or Al -A as hose erms are used in any research, bu all in o Pin o’s newly inven ed de ni ions o “subprime by charac eris ic” and “Al -A by charac eris ic.”30

o be clear, “subprime by charac eris ic” and “Al -A by charac eris ic” are erms haare no used by any o her analys s, le alone incorpora ed in o any ac ual researchin o he loan per ormance or dis ribu ion o subprime and Al -A loans.

Pinto’s newly invented definitions for “subprime” loans default at amuch lower rate than actual subprime loans

Pin o jus i es he crea ion o his new ca egories o “subprime by charac eris ic” and“Al -A by charac eris ic” by claiming hese ca egories beter cap ure he “objec iverisk charac eris ics” o cer ain “high-risk” loans ha should be considered subprime bu are no curren ly ca egorized as such.31 Bu looking a he delinquency ra es o

hese “subprime by charac eris ic” and “Al -A by charac eris ic” loans, i is clear hey shouldn’ be considered equivalen o subprime.

In ac , hese newly min ed “high-risk” loans per orm much more similarly o so-called con orming loans ( he prime mor gages ha everyone, including

Wallison and Pin o, agree are sa e) han hey do o ac ual subprime loans.

Pin o de nes “subprime by charac eris ic” o include all conven ional loansmade o borrowers wi h FICO credi scores be ween 620 and 660, and “Al -A by charac eris ic” o include all loans wi h a cash down paymen o less han 10percen .32 As o he second quar er o 2010, hese ypes o mor gages held by Freddie Mac de aul ed a a ra e o 10.04 percen and 8.45 percen , respec ively.33 Tis




appears high un il one compares his o he 6.8 percen seriousdelinquency ra e o con orming mor gages—loans Pin o doesno ca egorize as “high risk.”34 In con ras , ac ual subprimemor gages, which are universally designa ed as high risk, had aserious delinquency ra e o 28.3 percen .35 (see Figure 1)

I is wor h no ing here ha many ypes o mor gages aresu ering his orically high delinquency ra es, as would beexpec ed during a ime o 30 percen peak- o- rough housingprice declines amid persis en ly high unemploymen . Indeed,prime con orming mor gages, which are experiencing a6.8 percen serious delinquency ra e oday, saw less han a1 percen serious delinquency ra e in 2000. Ta said, i ’s clear

ha ac ual subprime loans are su ering exponen ially grea erdelinquencies han prime con orming loans, or Pin o’s new

ca egories o “high-risk” loans.

Because Pin o essen ially crea ed his own proprie ary de ni ion o “subprime” and “Al -A” loans here isunders andably con usion among hose who have ci ed Pin o’s research in using

hese erms. For ins ance, a a recen AEI even , Wallison, who has consis en ly used Pin o’s de ni ions o subprime and Al -A, s a ed ha “subprime” mor gageshave a 25 percen delinquency ra e.36 In ac , Wallison appears o have been ci ing

he delinquency ra es o ac ual subprime mor gages.37 As Pin o himsel nds, hedelinquency ra es associa ed wi h Pin o’s expanded de ni ion o “subprime” aremuch lower.38

Tus, no only do Pin o’s expanded de ni ions no ac ually describe “high-risk”loans bu hey con use he public by crea ing misleading conclusions based oninven ed de ni ions.

The vast majority of the “high-risk” mortgages Wallison and Pintoattribute to Fannie and Freddie would not qualify for the affordable

housing goals

In addi ion o he problems wi h heir expanded de ni ions o “subprime” and “Al - A,” Wallison and Pin o incorrec ly in erpre he a ordable housing goals or FannieMae and Freddie Mac, and as a resul , roughly 65 percen o he “high-risk” loans

hey atribu e o he a ordable housing goals were ac ually ineligible or he goals.

Figure 1

The real data on delinquent mortgages

Delinquency rates on Pinto high-risk loans vsconforming and actual subprime loans, Q2 20

10%

5%

0%

20%

15%

30%

25%

Pinto highrisk: Freddie

620-659 FICO

Pinto highrisk: Freddie

> 90 LTV

8.45%10.04%

Asub

S e r i o u s

d e

l i n q u e n c y r a

t e

Type of mortgage

Conforming

6.8%

Source: Mortgage Bankers Association, “National Delinquency Survey Q2 2010




Fannie and Freddie have long had a ordable housing goals in place as par o heirchar ered s a us. Tese goals require ha a cer ain percen age o Fannie and Freddie’s

o al mor gage ac ivi y be arge ed o very low-, low-, and modera e-income households.39

Al -A loans do no ypically quali y or he a ordable housing goals because hey are

generally high-balance, higher-income, high-credi -score mor gages ha are classi edas “Al -A” because hey do no documen income or asse s.40 Given he incomecharac eris ics o hese ypes o borrowers, hese loans ac ually dilu e he a ordablehousing ra ios o Fannie and Freddie, making i harder or hem o mee hese goals.

Similarly, Pin o’s “Al -A by charac eris ic” ca egory, which by de ni ion only includesloans made o borrowers wi h FICO scores higher han 660, encompasses loans haare generally made o higher-income borrowers.41 As wi h Al -A loans, hese loans would ypically no quali y or he a ordable housing goals o Fannie and Freddieand would ac ually make i harder or hem o mee heir goals by dilu ing heir

a ordable housing ra ios.

Tese wo ca egories o Al -A and “Al -A by charac eris ic” accoun or $1.2 rillion, or65 percen o he o al amoun o “high-risk” loans ha Pin o atribu es o Fannie andFreddie.42 Obviously, his has he e ec o grea ly in a ing he number o “risky” loansatribu ed o he a ordable housing goals.

Mortgages originated for Fannie and Freddie securitization defaulted ata fraction of the rate of those originated for “private-label” securitization

O he $1.2 rillion in “high-risk” mor gages Pin o atribu es o Fannie and Freddie,90 percen o hese were loans origina ed or Fannie and Freddie securi iza ion (wi h

he o her 10 percen being mor gage-backed securi ies hey purchased or heir owninves men por olio).43

In ac , mor gages origina ed or Fannie and Freddie securi iza ion have per ormed ar beter han hose origina ed or “priva e-label” securi iza ion—even when con rolling

or all o her ac ors such as he ac ha Fannie and Freddie did no securi ize subprime

loans. Overall, priva e-label mor gages ha were packaged and securi ized de aul ed amore han six imes he ra e o hose origina ed or Fannie and Freddie securi iza ion.44

Moreover, Pin o’s analysis ignores he high degree o riskiness o mor gagesorigina ed or priva e-label securi iza ion, which was responsible or 84 percen o all ac ual subprime mor gages.45 Despi e he ac ha priva e-label securi iza ion




is responsible or only 13 percen o ou s anding mor gages, i accoun s or a whopping 42 percen o all serious delinquencies.46

The Pinto/Wallison claim that the affordable housing goals for Fannie

and Freddie were responsible for 12 million subprime and Alt-A loansdoesn’t add up

Pin o inven s his own hugely expansive de ni ions or “subprime” and “Al -A”loans, which has he e ec o jacking up he number o subprime and Al -A loanshe atribu es o Fannie and Freddie. Tese sweeping new de ni ions do no appear jus i ed based on he delinquency ra e da a.

Moreover, Pin o’s analysis comple ely ignores he ac ha loans made o higher-income borrowers do no quali y or he a ordable housing goals. As a resul , Pin o improperly

coun s an enormous number o loans made o higher-income borrowers, which wouldno have quali ed or he a ordable housing goals or Fannie and Freddie.

I we sub rac he improper inclusion o Pin o’s newly inven ed ca egories o loans, as well as he erroneous atribu ion o Al -A loans o he a ordable housing goals, we arelef wi h a o al o $118 billion in ac ual high-risk loans ha migh heore ically have been promp ed by he a ordable housing goals.47

o be clear, Fannie and Freddie have su ered large losses, and much o his, as Pin opoin s ou , is due o heir aking on higher-risk mor gages. Bu Pin o’s broad expansiono he erms “subprime” and “Al -A” is con using and does no appear jus i ed by hedelinquency da a. Moreover, Pin o’s core claim— ha Fannie and Freddie were akingon addi ional risk because o heir a ordable housing goals—is un enable. Pin o’s

ndings are ar more consis en wi h he idea ha Fannie and Freddie were seeking oenhance heir pro s han hey are wi h he claim ha he wo ins i u ions were driven by a ordable housing policies.

Pinto claims that 4.760 million subprime and Alt-A mortgages are

attributable to federal agencies or programs

Pin o claims he Federal Housing Adminis ra ion, he Depar men o Ve erans A airs, and ural Housing programs are responsible or 4.760 million subprimeor Al -A loans (wi h an ou s anding loan balance o $537 billion).48 o ge o heseresul s, Pin o uses he ollowing logic:




For the period in question, approximately 83 percent o FHA loans consistedo high Original L V [loan-to-value] lending (Original L V>90 percent) andapproximately 70 percent had a FICO <660. Given these high percentages it is highly probable that at least 90 percent o FHA loans have one o these twocharacteristics. While similar data is not available or … VA and rural housing

loan programs, I believe that at least 60 percent o these loans also have one o these two characteristics.49

As wi h heir calcula ions in o her areas, Pin o’s analysis o FHA loans is a ally awed by his anomalous expansion o he erms “subprime” and “Al -A.” Tese

problems are ur her exacerba ed by he use o odd and unsuppor ed assump ions.

As with Fannie and Freddie, none of the loans Pinto attributes toFHA and VA is actually subprime or Alt-A

No ably, none o he FHA and VA loans ha Pin o describes as “subprime” or “Al - A” are ac ually subprime or Al -A, as hose erms are used in da a analysis. Pin ouses his inven ed “subprime by charac eris ic” (loans made o borrowers wi hFICO scores less han 660) and “Al -A by charac eris ic” (loans wi h a loan- o-valuera io o more han 90 percen ) de ni ions o reach his conclusions abou FHA and VA (Pin o does no ac ually include rural housing loans in his analysis).50

The delinquency rates do not justify Pinto’s description of FHAloans as “high risk” or subprime equivalent

As wi h Fannie and Freddie, Pin o’s crea ion o broadly expanded new de ni ionsor “subprime” and “Al -A” loans migh be jus i ed i , as he claims, hey beter

cap ured he objec ive risk charac eris ics o hese “high-risk” loans.51 Bu as wi hFannie and Freddie, he delinquency da a do no jus i y Pin o’s inven ion o new de ni ions o “subprime” and “Al -A” loans.

FHA loans as a whole have de aul ed a an exponen ially lower ra e han ac ual

subprime mor gages. As o he second quar er o 2010, FHA loans had a seriousdelinquency ra e o 8.4 percen , as compared o 28.3 percen or ac ual subprimeloans and 6.8 percen or prime con orming loans.52 (see Figure 2)

Pin o also makes an unsuppor ed assump ion ha 90 percen o FHA and VA loans are “high risk”.5 3 Given he compara ively low delinquency ra es or FHA




and VA loans, Pin o’s assump ion is di cul o unders and. Once again,Pin o’s inven ed “subprime” and “Al -A” ca egories look closer o primeloans han ac ual subprime loans.

I is wor h no ing once more ha all o hese delinquency ra es, including

or “con orming loans” ha are generally considered sa e, are a his oricalhighs, ye i does no appear ha Pin o’s claim ha 90 percen o FHA loans are equivalen o subprime is consis en wi h he delinquency da a.

Pinto claims that 2.24 million subprime and Alt-A mortgagesare attributable to the Community Reinvestment Act

Perhaps he mos popular o Wallison and Pin o’s claims abou hemor gage crisis among conserva ives is heir con en ion ha lending

required by he Communi y einves men Ac was responsible or heorigina ion o 2.24 million subprime and Al -A mor gages (represen ing$312 billion in ou s anding loan balance).54

As he does or “subprime” and “Al -A” loans, Pin o inven s a new de ni ion o Communi y einves men Ac lending, pulling in o his calcula ions a massivenumber o loans and inves men s ha could no reasonably be atribu ed o CR. Ins ark con ras o Pin o’s claim ha here were 2.24 million ou s anding subprime and Al -A loans origina ed because o CR, he Universi y o Nor h Carolina’s Cen er orCommuni y Capi al has ound ha only 378,000 o he subprime and o her high-risk loans origina ed be ween 2004 and 2006 were eligible or CR credi .5 5

Pin o also assumes ha all CR-eligible lending is done because o CR, a dubiousassump ion he ails o suppor . Perhaps mos problema ic, Pin o includes a largeamoun o loans ha were origina ed by ins i u ions no even subjec o CRregula ion, which he calls “CR-like” loans, under he enuous heory ha volun ary,nonbinding “commi men s” o do communi y-based lending were equivalen o CR.

I is impor an o no e ha under Pin o’s expanded de ni ion, li erally all low- and

modera e-income lending, as well as a good deal o o her lending and inves menac ivi ies, quali y as “CR loans.” Tis de ni ion does no , however, ell us any hingabou whe her or o wha ex en CR caused hese loans o be made, making he value o Pin o’s research in his area essen ially meaningless.

So le ’s delve in o hese numbers here.

Figure 2

The real story aboutdelinquency rates

FHA loans vs. conforming andsubprime loans, Q2 2010

Source: Mortgage Bankers Association, “National DelinquQ2 2010” (2010).

10%

5%

0%

20%

15%

30%

25%

FHAloans

Primeconforming

loans

Asu

8.4%6.8%

S e r i o u s

d e

l i n q u e n c y r a

t e

Type of mortgage




Pinto’s “CRA commitments” include a huge amount of loans and investmentsoutside the scope of CRA

Pin o calcula es how much lending was mo iva ed by CR by adding up he “CRcommi men s” announced by various banks and hrifs.56 o be air o Pin o, i is

di cul o calcula e how much CR-eligible lending was done. However, his me hodis awed. In ac , hese “CR commi men s” were ypically “communi y-lending”announcemen s ha ou ed he company’s o al communi y lending, includingsmall-business loans and inves men s in minori y communi ies, and o her ca egories o lending and inves men .57

CR simply requires regula ed banks and hrifs o lend nondiscrimina orily olow- and modera e-income borrowers and communi ies wi hin limi ed assessmenareas— he immedia e geographic areas surrounding branch o ces o a deposi -

aking ins i u ion.58 Te communi y-lending announcemen s relied upon by Pin o o

calcula e “CR lending” include a large amoun o volun ary lending and inves menac ivi y ha all ou side he scope o CR or any equivalen requiremen . Tey alsoinclude a large amoun o low- and modera e-income lending done by he nonbank a lia es and subsidiaries o banks and hrifs, o which CR does no apply.

Pinto also counts loans originated by lenders not subject to CRA

Jus as he does wi h “subprime” and “Al -A” mor gages, Pin o expands he scope o he erm “CR loan” o include mor gages ha all ar ou side i s accep ed meaning.

Speci cally, he crea es a new ca egory o “CR-like” loans, which includes loansand inves men s by lenders ha are o ally exemp rom CR.59 In ac , 37 perceno Pin o’s calcula ion o CR’s impac comes rom “CR-like loans” origina ed by Coun rywide, a major subprime mor gage lender during he housing bubble ha wasno subjec o CR.60

Pin o jus i es his rede ni ion o he scope o CR by arguing hese Coun rywideloans were announced as par o a volun ary, nonbinding “commi men ” made wi h

he Depar men o Housing and Urban Developmen .61 Pin o overlooks he public

rela ions value o Coun rywide making his volun ary, nonbinding announcemenas well as he possibili y ha i was already planning o make hese loans o low- andmodera e-income borrowers, and simply assumes he exis ence o CR somehow managed o convince Coun rywide o op in o a similar, albei nonbinding, regime.




Implici in his me hodological aw is a larger problem wi h Pin o’s argumen : Herepea edly assumes ha lending o low- and modera e-income borrowers couldonly have been promp ed by governmen regula ions, laws, and policies. As aresul , Pin o con inues o rejec he idea ha unregula ed priva e lenders made

hese loans (ofen crowding ou ac ual CR lenders) because i was pro able,

par icularly i hey could sell he loan o a securi iza ion condui ha did no dosu cien due diligence on he credi risk o he loan.

By con a ing communi y lending wi h CR lending and improperly including“CR-like” loans in o his coun , Pin o dras ically in a es he number o CR-eligible loans. Pin o claims ha here were 2.24 million ou s anding subprime and Al -A loans origina ed because o CR. Tis is in sharp con ras o o her ndings. As no ed earlier, he highly respec ed Universi y o Nor h Carolina’s Cen er orCommuni y Capi al has ound ha only 378,000 o he subprime and o her high-risk loans origina ed be ween 2004 and 2006 were eligible or CR credi .6 2

Pinto assumes that all lending to low- and moderate-incomeborrowers was the result of CRA

Pin o makes he ur her error o assuming ha all CR-eligible lending is heresul o CR.63 Even i one ignores he serious problems wi h Pin o’s CRresearch and accep s a ace value his con en ion ha here were 2.24 million“high-risk” loans eligible or CR, i is impossible o ge o Pin o’s conclusion haCR was responsible or all 2.24 million o hese loans, unless one assumes here would be no communi y lending wha soever in he absence o CR or some o herequivalen law or regula ory requiremen . Pin o does no provide any suppor

or his enuous assump ion. In ac , he Federal eserve ound ha mos CR-eligible lending would have been done regardless, and ha only 17 percen o suchlending was ac ually promp ed by he law.6 4

Pinto’s assumption that 60 percent of CRA loans were “high risk” isunsupported and contrary to other findings

Pin o’s analysis assumes, wi hou jus i ca ion, ha 60 percen o CR loans allin o his “subprime by charac eris ic” or “Al -A by charac eris ic” ca egories.65 Ignoring he above ou lined problems wi h Pin o’s inven ed de ni ions o “subprime” and “Al -A,” his assump ion seems highly un ounded or ano her




reason as well. O her es ima es o he number o high-risk loans genera ed by CR have generally been a rac ion o Pin o’s es ima es. Te Universi y o Nor hCarolina’s Cen er or Communi y Capi al, or example, nds ha less han 12percen o CR-covered loans, roughly 367,000, were higher risk.66

Pin o’s asser ion is also undermined by he ac ual delinquency ra es o loansorigina ed or CR purposes. esearch by o her analys s demons ra es ha CRloans, made o equivalen borrowers, have ou per ormed non-CR loans by abou60 percen o 70 percen .67

Clearly, Pin o makes a high degree o unsuppor ed me hodological assump ionso suppor his essen ially ideological conclusion ha i was a ordable housing

goals ha caused he nancial crisis. Beyond ha , however, his conclusions areinconsis en wi h he ac ual even s ha occurred in he pas decade. Le ’s now explore hese problems wi h his research.




Pinto’s conclusions fail tocorrespond with external events

Te rs ac Pin o canno explain away is ha he share o mor gages securi ized by Fannie Mae and Freddie Mac as well as mor gages origina ed by CR-regula ed ins i u ions dropped precipi ously while priva e-label securi iza ionspiked. From 2003 o 2006, a key period whenmany o he riskies mor gages were origina edand house-price apprecia ion was soaring,Fannie Mae and Freddie Mac experienced a

precipi ous dip in heir marke share, goingrom 57.6 percen o he mor gage marke in

2003 o 37.4 percen in 2006.68

Similarly, he share o CR-regula edins i u ions experienced a signi can declineas well.69 Over his same ime period, hemarke share o priva e-label mor gage-backedsecuri ies issuers grew rom roughly 8 percen

o 12 percen in 2003 o 38 percen in 2006.70

I is hard o unders and his claim ha FannieMae, Freddie Mac, and CR were he prime culpri s in he

nancial crisis when heir ac ivi y was heavily mu ed duringhe run-up o he nancial crisis. (see Figures 3 and 4)

Pinto’s conclusions fail to explain contemporaneouscredit bubbles around the world

Pin o’s conclusions also ail o explain con emporaneouscredi crises in Grea Bri ain, Iceland, Ireland, Spain, andDenmark, none o which has governmen ins i u ionsanalogous o Fannie Mae, Freddie Mac, or Ginnie Mae, or

0%

10%

20%

30%

40%

50%

60%

70%

‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06

Privately securitizedSecuritized by Ginnie Mae

Securitized by Fannie Mae and Freddie MNot securitized

Figure 3

Wall Street led the charge

Share of total residential mortgage originations

Source: Financial Crisis Inquiry Commission (2010).

40%35%

30%25%20%15%

‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04

45%

50% Home purchase Renance

Figure 4

The Community Reinvestment Act did ncause the housing crisis

Share of all loans made within CRA assessme

Source: Kevin Park (2008).




policies analogous o CR. Tese coun ries experienced major bubble-buscycles, wi h heir sovereign governmen s providing major bailou s o heir banking sys ems as a resul .

Similarly, Pin o’s conclusions are inconsis en wi h he rela ive success o Canada,

which does have an ins i u ion similar o Fannie/Freddie/Ginnie ( he CanadaMor gage and Housing Corpora ion), an idiscrimina ion lending policiesanalogous o CR, and high levels o governmen suppor in he mor gagemarke s.71 Bols ering he mains ream narra ive ha i was unregula ed priva elending ha drove he housing bubble, Canada, unlike he Uni ed S a es and many o her coun ries ha experienced a recen housing bubble, did no have a majorsurge in unregula ed lending and new produc ypes, as priva e-label securi iza ionremained negligible hroughou he 21s cen ury.72 As Wallison and Pin o’scolleague, AEI Visi ing Scholar Mark Perry, has s a ed, Canada may be a “model

or banking re orm in he Uni ed S a es.”73

Pinto’s conclusions fail to explain contemporaneous credit bubblesin commercial real estate or other asset classes

Pin o’s conclusions also ail o explain why commercial real es a e, which wasno subjec o any governmen a ordablehousing policies, has experienced a nearly iden ical, and po en ially much worse, bubble-bus cycle as residen ial real es a e.74 Commercial real es a e prices have dropped by roughly 40 percen rom peak o roughand analys s warn ha delinquencies in

he commercial real es a e marke couldul ima ely resul in losses grea er han inresiden ial real es a e, despi e he ac ha

o al commercial mor gage deb is only one- hird he size o residen ial mor gage

deb .75

(see Figure 5)

Figure 5

Commercial vs. residential real estate bubbles

Property bubble-bust in commercial real estate happened whenaffordable housing goals were inapplicable but securitizationwas rampant

6080

100120140160180200

Property price indices

Delinquency rate

Price index (2000Q1=100) 30+ day delinquency ra

CommercialResidential

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008




Conclusion

I is un or una e ha he analysis o Edward Pin o appears o have been sucha s rong ac or in FCIC Commissioner Pe er Wallison’s decision o veer away

rom he evidence. While he numbers o ered by Pin o’s analysis o subprimeand Al -A mor gage origina ion appear o ell a convincing s ory, hey are basedon a ounda ion o serious errors and leaps in logic ha do no hold up o any semblance o rigorous analysis.

In he coming mon hs, Congress and he Obama adminis ra ion will be grappling wi h how o re orm he wo mor gage nance gian s, Fannie Mae and FreddieMac, relying in par on he conclusions o he majori y o he Financial CrisisInquiry Commission members. While here are many lessons we should be

aking away rom he ailures o hese wo governmen -sponsored en erprises—including he problems wi h implici governmen guaran ees a priva e or-pro

rms—i would be un or una e i policymakers relied on Pe er Wallison’s claimha ederal a ordable housing policies caused he nancial crisis, since his is

based so ex ensively on he undamen ally awed research o Edward Pin o.




Endnotes

1 k t h ss y, d ug s h tz-e , B T s, “d ss t gSt t t: c us s t e c s s,” J u y 27,2011, v b t ttp:// 0182732. 1. u s. sp u .

/ _ _ p t_ ss y_ tz- _t s_ ss t.p .

2 c s s i qu y c ss , “r p ts t S ts,”v b t ttp://www. .g v/ s u / p ts.

3 r pub c ss s t c s s i qu yc ss , “ c s s P ,” d b 15, 2010, v b t

ttp://www. . g/ l b/ c s sP .p .

4 P t J. W s , “d ss t t m j ty r p t t c s s i qu y c ss ” (W s gt : a

e t p s i st tut , 2011), v b t ttp://www. . g/ l b/

W s ss t.p .

5 ib .

6 W s , “d ss t.”

7 P t J. W s , “m v g B y ,”The Wall Street Journal , J u y 3, 2011,available at ttp:// .wsj. / t /SB10001424052748704353504575596872063967914. t .

8 W s , “d ss t.”

9 S , x p : W s , “d ss t;” e w J. P t , T st yb t h us c tt ov s g t G v t r ,d b 9, 2008, v b t ttp://www. . g/ l b/20090116_

4.p .

10 dw g t J , “r g t U.S. m tg g m t T ug P v tm t i t v s,” p p p s t t t P st, P s t,

utu t G v t Sp s e t p s s, r s vB St. l u s, n v. 17, 2010, p. 6, v b tttp://www. .g v/ u ts/v w/1701; V a y t s,Guaranteed to Fail: Fannie Mae, Freddie Mac, and the Debacle o MortgageFinance (P t , nJ: P t U v s ty P ss, t g);P t J. W s c s W. c s, “T l st T -dc t t” (W s gt : a e t p s i st tut , 2008),

v b t ttp://www. . g/ ut /28704; r W. r ,“W t c us t c s s,”The Washington Times , n v b15, 2010, v b t ttp://www.w s gt t s. / ws/2010/

v/15/w t- us -t - - s s/; J s P t u s,“S x w ys g v t p us t s s,” r ut s,d b 22, 2010, v b t ttp://b gs. ut s. /j s-p t u s/2010/12/22/s x-w ys-g v t- p - us -t -

- s s/ ( t g P t ’s u qu t t “g v t t t s pu s , gu t , p t g t 19

t 27 t t U.S. subp a t-a tg g sutst g”).

11 G v t a u t b ty o , “n p m tg g s: a ys s l P , t s ass t w t d u ts, d tS u s,” Gao-10-805, r p t t t J t e c tt ,U t St t s c g ss, august 2010, v b t ttp://www.g .g v/ w. t s/ 10805.p .

12 J s B. l t, “T r s m , m , t h l B s St b z g t m tg g m t,”

Sp t t n t ass t r est t e t s, W s gt ,d.c., Ju 18, 2009, v b t ttp://www. .g v/w b s/2919/l t_Sp _t _n t _ass t _ _r _est t _e t s-06-18-09.p .

13 c s s i qu y c ss , “c us s t c s s i qu y c ss ” (2011), v b t ttp:// 0182732. 1.

u s. sp u . / _ _ p t_ us s.p .

14 l t, “T r s m .”

15 “cra d n t c us t su c s s,” v b t ttp://www..u . u/ .p p ( st ss J u y 2011).

16 e w J. P t , “S z g T t G v t ag yc t but s t Subp a t-a l s U.S. st m tg gm t s 6.30.08,” ex b t 2, v b t ttp://www. . g/

l b/P t -S z g-T t - -c t but s.p .

17 “cra d n t c us t su c s s.”

18 e w J. P t , “G v t h us g P s t l -up t t c s s: a s Stu y,” n v b 4, 2010, v b t

ttp://www. . g/ l b/G v t-h us g-P s- -c s s-P t -102110.p ; P t , ex b t 2, p. 4. T s s t t tw s b us g p s, t t t t s su s p t t v p gu t y v s g t, t t v t g y

g t t “ g - s ” tg g s g g s,P t s p y t x p s. h s t us tt ust t us - - t b s s b tw b us gp s t g t “ g - s ” tg g s. S : P t ,“G v t h us g P s.”

19 P t s s t t u t t g b tw t U.S. us gs s t b g b s s. x p , P t ’s

gu t s t ss w g v t us g p s wp t t aaa t gs p v t - b tg g -b

s u t s, t p b s t U.S. st t t,t u s l B t s aiG t t , t qu ty

t v g t p ts, y u b t ssu s t t stbs v s w u s t t u st g t tu t s s w t y xp . b tt u st g

s t ssu s s by t s s s, s , x p : G y G t ,“S pp t by t i v s b h : B g t P 2007,” m y 9, 2009, v b t ttp://p p s.ss . /s 3/p p s.

? bst t_ =1401882.

20 W P t ’s g t t t 26.7 subp a t-a tg g s utst g, w 19.252

tt but b t t g v t, w s s Ju 30,2008, s p t y us t s t p s t t s , st

t y J u y 11, 2011. S : P t J. W s , a x J. P , e w P t , “T g t G v t out h us g :

P p s r g t h us g m t” (W s gt :a e t p s i st tut , 2011), v b t ttp://www. . g/p p /100189. w g P t ’s us g t s p t u s, i w

s t t t p s t t s .

21 Gao, “n p m tg g s.”22 l t, “T r s m .”

23 P t s st t t t t u t y 26.7 s “ g - s ”tg g s utst g u us s s, st t y

J u y 20, 2011. S : W s , P , P t , “T g tG v t out h us g .” T s pp s t tP t ’s us t t t w 26.7 “subp ” “a t-a”

s utst g s Ju 30, 2008. S : P t , ex b t 2, p. 4.

24 P t , ex b t 2, p. 4.

http://www.fcic.gov/documents/view/1701







25 l t, “T r s m .”

26 T d p t t V t s a s w s y w s tV t s a st t , s qu t y t s Va.

27 W s , “d ss t”; P t , ex b t 2, p. 5–9. P t st t s t t m t t $1.077 t t t xp su (p. 5)

t t m t t $758 b t t xp su (p. 8) tsubp a t-a tg g s.

28 S t -1990s, t s v s ust y s g yus t t “subp ” t s b g v t s t t

g s t us g t s tu . S : P t , ex b t 2,p. 2–3.

29 x p , t p t s Gao t h us g ag y, t p y gu t t GSes, g w t v tu y

t bj t v ysts us st ust y t s “subp ” “a t-a,” w t y v t s. S : Gao,“n p m tg g s”; h us g ag y,“c s v t ’s r p t t e t p s s’ P , TQu t 2010,”, v b t ttp://www. .g v/w b s/19585/c s v t %27s_r p t112910.p . d t t p subp a t-a s typ y b s su v ys tg gs v s mBS ssu s, by s s c l g lPS. S , x p : l d g t s, “r s y B w s r s ym tg g s: d s gg g t g e ts Us g P p s ty S m s.”W g P p (c p h , nc: Unc c t c u ty c p t ,2008), v b t ttp://www. .u . u/ u ts/r s y.d s gg g.5.17.10.p ; c st p l. t t s, “Just t ts:a t ys s subp ’s t us g s s,” Journal o

Housing Economics 17 (4) (2008): 291–305.

30 P t , ex b t 2, p. 5–9. P t us s t t g s s:Subp mBS, a t-a mBS, yb t g y “Subpby c t st s, S - t a t-a a t-a byc t st tg g t b .” T s yb t g y

t s t t $1.646 t : $1.011 t m $635 b m . l g t P t ’s s u s(t s -qu t gs p ts ), w

s t ut t tu a t-a s p t by ,w P t s “s - t a t-a.” m p ts t t $309.9 b tu a t-a s ts gu t b .S : “ m 2008 Q2 10-Q i v st Su y,” p. 27, v b

t ttp://www. . / /p / ws s s/2008_Q2_10Q_i v st _Su y.p ;js ss =rYQYSh5Phl4h5J2 eciS Ga. m p ts t t $190 b tu a t-a

s ts gu t b . S : “ m ’s S Qu t2008 r su ts,” p. 27, v b t ttp://www. .

/ v st s/ /p /s s_080608.p . Subt t g t s $499.9

b tu a t-a s t $1.646 t P t ’s ybt g y tu a t-a s, “Subp by c t st ” “a t-a by c t st ” v s us w t $1.146 t , w s tt t u t tg g s t t t t P t ’s v t t g s “subp by t st ” “a t-a by t st .”

31 P t , ex b t 2, p. 1–4.

32 P t , ex b t 2, p. 1–4. it s s w t t g t t P t ’s “subpby t st ” t s v f w w tu y

s t t tt but s subp s. as t s, t s ss subp s w s tu y g t v y t w t t

s s v t u s t us g bubb , t g t t icos s p t u y pp p t su g “subp .” S : t t s, “Just t ts.”

33 “S Qu t 2010 r su ts Supp t,” p. 19, v bt ttp://www. . / v st s/ /p /supp t_2q10.

p .

34 m tg g B s ass t , “n t d qu y Su v y Q22010” (2010); P t , “G v t h us g P s.”

35 ib .

36 “W t S u r p ?”, v b t ttp://www.. g/ v t/100356.

37 S , x p : mBa, “n t d qu y Su v y.”

38 e w P t , “T gg s t c s s,” m u t St cic, m 15, 2010, p. 4, v b t ttp://www. . g/ l b/

P t cicT gg s.p .

39 S , x p : o P y d v p t r s ,HUD’s Afordable Lending Goals or Fannie Mae and Freddie Mac (d p t t

h us g U b d v p t, 2001), p. 2–3.

40 S , x p : e St , “Tu t U.S. c t m ts: TG s s t cu t e c s s,” T st y b t U.S.S t c tt B g, h us g U b a s, o t b16, 2008, v b t ttp://www. sp s b g. g/ tg g -

g/p y- g s t / g ss/s t -t st y-10-16-08-g-st - .p ; T d uts , “ i v t s l b

h us g: B y t c s s,” o t b 7, 2008.

41 P t , ex b t 2.

42 as b v t , P t b s a t-a, “a t-a by t st ,” “subp by t st ” s t yb t g y, s s t w b w t u st x t y w y a t-a “a t-a by t st ” s s u t . T t s, i

subt t t t t s “subp by t st ” s, wP t s s s t b w s w t sub-660 ico s s,

P t ’s yb t g y. i t s -qu t 2008 s,b t y st t sub-620 ico s s.

sts $127.4 b t s t g y. S : “ m 2008 Q2 10-Qi v st Su y,” p. 30. sts $76.0 b t s t g y.S : “S Qu t 2010 r su ts Supp t,” p. 27.

P t u t s s w st t s t u t s by t p s t t s t t 620-659 ico s t g y,

s b g $267 b su s t $164 b su s t . S : P t , ex b t 2, p. 18. i t t t , P t

s t t t $634.4 b “subp by t st ” stt but b t . i t t , P t u t s t t t

$1.717 t a t-a, “a t-a by t st ” “subp byt st ” s gu t by . S : P t ,

ex b t 2, p. 5, 8. Subt t g t $634.4 b “subp byt st ” s t s u b v s us w t $1.201 t

a t-a “a t-a by t st ” s. n t t t b us ubu t g, t s t gy tu y u st t s t u t

a t-a “a t-a by t st ” s P t ’s gs.

43 P t s t t 6.616 t 7.026 “ g - s ” s by m w ts gu t b bus ss. S :

P t , ex b t 2, p. 5. h s t t 4.155 t 4.913 “ g - s ” s by m w ts gu t b

bus ss. S : P t , ex b t 2, p. 6. i t t , t s s 90 p t t

“ g - s ” s t t P t tt but s t t tw us g t p s s.

44 r e u , “S u t z t m tg g d u t: r put t vs.a v s S t .” W g P p 09-21 ( r s v B P p , 2009), v b t ttp://www. .g v/w b s/15052/w bs t _ u .p .

45 ib .

46 l t, “T r s m ,” s 13.

47 P t , ex b t 2, p. 5–9. P t s t tu subp s s “s -t subp .” i s y t t y b us t s us

ssu s t t subp tg g xp su w s t v t by tb us g g s, w y t t t t w s tu y

t v t by p t s g. S , x p : St , “Tu tU.S. c t m ts.”

48 P t , ex b t 2, p. 4.

49 P t , ex b t 2, p. 9–10.

50 ib .

51 P t , ex b t 2, p. 1–4.

52 mBa, “n t d qu y Su v y.”




53 P t , ex b t 2.

54 P t , ex b t 2, p. 4.


56 P t , ex b t 2, p. 12–15; P t , “G v t h us g P s,”p. 170–172.

57 S , x p : “B a $1.5 T c u tyd v p t l g & i v st t G ,” v b t ttp://www.b . . / u ty/p /$1.5T_ t_S t_ inal.p .


59 P t u s $789 b c u t yw s “cra- ”s. S : P t , ex b t 2, p. 12–15.

60 P t s t t s p t c u t yw t s u t cra’s p ts s pp p t b us t w s pu su t

t “hUd c t t.” S : P t , ex b t 2, p. 13. i t, t s“c t t” w s p t y v u t y -b g, s P t

t s s t t s. S : P t , “G v t h us g P s,”t t 429. n t c u t yw y ts t s

subs s w subj t t cra u t 2007, w c u t yw T t’s pp t t st t gu t p s t-t g subs yw s pp v by t o T t Sup v s . S : o T tSup v s ,OTS Approves Countrywide Application , oTS 07-014(d p t t t T su y, 2007), v b t ttp://www. ts.t s.g v/_ s/777014. t .

61 P t , “G v t h us g P s,” p. 168. P t p t ys b s c u t yw ’s g t v t s s b g spu by

“hUd c t t.” i t, bu s t t s s t t t t t s“c t t” w s tu y “v u t y d t l gP p s P t s” (“d t ”).


63 P t , ex b t 2, p. 15. P t u ts 11.2 t t “c u tyl g” s, w st t s 60 p t w g s .h t st t s t t 65 p t cra s w bs bby , , ha, s t v ub u t g,

tt but s 35 p t t “ g - s ” “c u ty l g” st cra ( t y u t ). at p t t s u t s

supp t s u y g ssu pt t t t “c u tyl g” s w b us cra.

64 “Su v y t P P t b ty cra-r t l g,”v b tttp://www. s v .g v/ u ty v/

su v y. t .

65 P t , ex b t 2, p. 15. P t st t s t t “[g] v t c u tyd v p t P g s’ t g t qu ts g s f x b u w t g, t s s b t ssu t t st t s

s (s y 60 p t 6.7 ) t subp ( ico b w660) a t-a t st s.”


67 l d g t s, “r s y B w s r s y m tg g s”; e z b tl c r , “cra l g du g t Subpm t w ,” b u y 2009, v b t ttp://www. bs . g/pub t s/ u ty/ / _ g_ u g_subp _

t w .p .

68 S , x p : c s W. c s, “T subp tu : W t’s, w t’s w, w t’s xt,” V x, august 22, 2008, v b

t ttp://www.v x u. g/ x.p p?q= /1561; c s si qu y c ss , “G v t Sp s e t p s s t

c s s,” ap 7, 2010, p. 14–15.

69 k v P , “Subp l g t c u ty r v st ta t,” h v U v s ty J t c t h us g Stu s, n v b2008, v b t ttp://www.j s. v . u/pub t s/g v tp g s/ 08-2_p .p .

70 c s s i qu y c ss , “S u t z t t c s s,” ap . 7, 2010, p. 11.

71 d v m , “T u n t : T ts ab ut t c m tg gB g Syst ” (W s gt : c t a P g ss, 2010),

v b t ttp://www. p g ss. g/ ssu s/2010/08/p /

_b g.p .

72 ib .

73 m J. P y, “du n t : c ’s m v us m tg g B gSyst ,”The American , b u y 26, 2010, v b t ttp://www.

. / v /2010/ b u y/ u - t - s- v us-tg g - -b g-syst .

74 d v m. ab w tz d v m , “P t s m st B t t,” c t a P g ss, d b 21, 2010, v b t ttp://www.

p g ss. g/ ssu s/2010/12/ _ s s. t .

75 G s J . a S v s , “ s s s: Putt g u c ystB as c t g t d ts… t s W d t ti p t cre l d u ts t e y” (n w Y : S c p tllc, 2010), v b t ttp:// . g t . /p p s/0/

s _c yst _B _T _2_Ju y_1_2010.p .

http://www.federalreserve.gov/communitydev/craloansurvey.htm







About the author

David Min is Associa e Direc or or Financial Marke s Policy a he Cen er or American Progress.

Faulty Conclusions Based on Shoddy Foundations

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