| Subprime mortgage lending will return to the U.S. housing market, according to economic panelists participating in a discussion today about the nation’s mortgage crisis. Among the panelists was Dr. Robert Shiller.
The event, Til Mortgage Do Us Part: The Science, was hosted online by the National Science Foundation. Shiller, of Yale University and of the Case-Shiller Home Price Index, was joined by Caltech neuro economist Dr. Colin Camerer and National Science Foundation economist Dr. Nancy Lutz. The three were examining the human dimensions of the nation’s mortgage crisis. MortgageDaily.com posed the following question to the trio:
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Robert Shiller during event |
Shiller said subprime mortgage lending increases the option set for subprime borrowers. But he noted that subprime lending was not done right and needs to be fixed.
“There is a function here, and that is allowing people who don’t have the highest level of credit to get a home,” he said. “The terms aren’t going to be as good.
“But they don’t have to take them.”
Shiller acknowledged, however, that the current regulatory environment is “rather hostile to the subprime market.” But he said the Obama administration’s proposed Consumer Financial Protection Agency will make subprime lending work better.
Colin Camerer during event |
Camerer noted that given the tendency for people to over-react to this type of historical situation, the stereotype of subprime lenders is driving hostility and policy.
He compared the subprime market to junk bond trading before a market for junk bonds was created. He said the high-yield bonds weren’t traded because of their high default rates. But Camerer went on to say that there were investors for such high-risk bonds. And while that market comes and goes, “it’s here to stay.” He indicated that as people start to see data and market resilience, the subprime market will come back to life in a more efficient form. Shiller agreed. “I’m optimistic that we will have securitized subprime loans again, but done better so that we don’t have a crisis like this,” Shiller said. “They will come back, whether securitized or not.” |
