I recently read an article entitled, "How we can avoid another crisis in mortgage lending". This article was written by Michael S. Barr, Sendhil Mullainathan and Eldar Shafir. Barr a law professor, Mullainathan an economics professor and Shafir a psychology professor. After reading this article one would conclude that the article is an exercise in psychology rather than a economic discourse. The writers concluded....to quote, "Eligible borrowers would be offered a standard mortgage (or set of mortgages), and that's the mortgage they would get - unless they choose to opt out in favor of another option, after honest and comprehensible disclosures from brokers or lenders about the risks of the alternative mortgages."
It's unbelievable how so many individuals are offered print space and air time to discuss subjects that they appear to know little about. First of all in my opinion, it's not a crisis but a business correction cycle which can be avoided no more than any other business cycle. One could only hope to lessen the negative affects. Seems to me that an economics professor would or should know that. When profit is present in a sector....fools rush in. This usually tends to drive down profits along with competence. Eventually that same sector will correct itself causing fools to rush out....lol
These writers must be in their early twenties, or is the article designed to dumb down the American Public? If you are older than 40 or studied a little history, I'm sure you know about the lending correction cycle of the mid to late 80's with it's high forclosures and noose bleeding interest rates. Yeoooowww! Then the scapegoat was Reaganomics. Today's scapegoat is the Mortgage Lenders and the Brokers. Who will be tomorrows scapegoat?
Secondly mortgage borrowers can't be stereotyped into one specific group. The mortgage borrower profile varies on a spectrum diverse as the homes themselves, with factors ranging from income, credit, locale, race, age, marital status, and sex.....just to name a few. The buying motivators themselves range from, "if my pet or cat likes it I'll buy it," to "if I can just somehow afford the payments for a short while I buy it". One must consider the motivation of the Mortgage Lender as well. They have different motivators for making monies available...........not always profit....supprise! During the lending haydays, my wife and I would often joke after closing a loan on some dubious buyer with comments like, "I guess the mob needed to show a loss."
Maslow's Law states that people will always aspire to obtain a place to dwell and call home. For this reason the Mortgage and Real Estate Industry will always be a vital, vibrant, intricate part of American Economics.