Subprime Mortgages Have a New Name

From the NYT:

More than 12.5 million people who might have qualified for a home loan before the crash have been shut out of the market, Mark Zandi, the chief economist for Moody’s Analytics, estimates. Members of minority groups have especially suffered; blacks and Hispanics are rejected by mortgage lenders far more often than whites.

Has anybody respectable (i.e., not me) learned the lesson that if a lender doesn’t have disparate impact against Hispanics and blacks, it’s probably lending too much?

Let me say that a different way: the more racial equality in lending, the more likely it is to end in tears.

Six years after 2008, how many influential people can articulate that thought even in the privacy of their own minds? There’s a widespread assumption that, well, sure, we lie all the time in public about racial matters, but we privately understand how things really work and therefore we won’t blow up the world. But we did in 2008, and how many people in 2014 understand the sizable role of Diversity Ideology in the Great Crash?

My experience is that people can understand their private interests while only speaking in euphemistic code (“let’s not move to that neighborhood because it has bad schools”), but human beings are very weak at understanding second order public policy issues without publicly articulating the facts.

Despite the new regulations, there is much that is familiar about the new subprime lenders. Athas is based in Calabasas, the Southern California city that was once the home of perhaps the most infamous subprime lender, Countrywide Financial. Athas’s chief competitor, the Citadel Servicing Corporation, is in Orange County, another onetime hotbed of subprime lenders.

Subprimes were a national phenomenon, kind of, but they sure can be epitomized by the four outlying counties of Greater Los Angeles, with subprime lenders concentrated in Orange and Ventura Counties near the coast, and the subprime borrowers more inland in Riverside and San Bernardino Counties.

Many of the players are the same, too. Mr. O’Shaughnessy met his partner, Alim Kassam, during the bankruptcy of Quality Home Loans, which had bought Mr. O’Shaughnessy’s previous company, Bankers Express Mortgage.

It’s like how you can track the stockbrokers in the real life version of The Wolf of Wall Street to subsequent firms.

But the vocabulary has changed. Because new federal regulations have created something called a qualified mortgage, or Q.M., which must conform to strict requirements, future lending is likely to be categorized as Q.M. or non-Q.M. rather than prime or subprime.

So, it will all be different next time.