Here’s an article by Ed Leamer from UCLA Anderson Forecast (the same Ed Leamer who suddenly shifted gears near the peak and wrote that the bubble wasn’t really that bad after all, and we shouldn’t see prices fall significantly…I wonder who was paying him off), questioning whether or not there was a bubble in 2002:
And here, the Federal Reserve itself was cautioning against an increase in abusive lending practices:
The revisions also restrict certain
acts and practices in home-secured
transactions. For example, creditors may
not refinance their HOEPA loans within
one year of extension if the refinancing
is not in the borrower’s interest.
To strengthen the existing prohibition
against extending credit on the basis
of homeowner equity without regard to
ability to repay, creditors must verify
and document the homeowner’s repayment
ability. The disclosures that must
be given three days before closing to
borrowers obtaining HOEPA-covered
loans must state the total amount borrowed
and must indicate whether that
amount includes payment for optional
credit insurance or similar products.
Believe it or not, that was from 2001. I have no idea what happened to cause things to get even more risky in the mortgage markets. Somebody was paid off, IMHO (yes, I tend to think our problems were not due to stupidity on the part of regulators and financial executives, but were due to certain people who stood to gain from the credit bubble, and who had the power to persuade lawmakers to do their bidding).
