Friday, July 20, 2007

More Media Economic Illiteracy on Housing Bubble -by Associated Press this Time

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The Associated Press asserted:

"Massachusetts is among many states that have recently sought to ease spiking foreclosure rates by tightening lending regulations" (AP Business Writer Mark Jewell at
No, the opposite is true.

Tighter lending now increases foreclosures now by eliminating the top 2 options for a person who wants to get out of his/her bad loan by closing the account with a full repayment (no default):
  • Reselling to Yourself (Refinancing): A troubled borrower who got in over his/her head is unable to refinance (same credit score no longer meets new standard when you "raise the bar").
  • Reselling to Others: A troubled borrower who cannot afford his/her home finds fewer shoppers who can afford his/her home (the same tighter standards that prevent the "owner"'s refinancing also prevents potential buyers from qualifying for a mortgage to close the sale).
Tighter lending standards in the past would have prevented many foreclosures today (but that horse already has bolted), and tighter lending standards now might lower the forclosure rate in the future, but the immediate effect of new tighter lending standards today will be to increase the current spike in home mortgage foreclosures.

The article's claim that tighter lending regulations will ease the current foreclosure spike means that the AP is clueless about economic policy, or the state of Massachusetts is clueless about economic policy, or both.

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