Sub-prime loans are irresponsible: PM
AUGUST 17 2007
http://www.smh.com.au/national/subprime-loans-are-irresponsible-pm-20070817-ttc.html
Prime Minister John Howard has labelled as irresponsible so-called sub-prime mortgages, which have sparked falls on world share markets.
But Mr Howard said unlike in the United States, such loans only made up about one per cent of total borrowings in Australia and the issue was not a concern to the great majority of Australian home owners and borrowers.
"They're really loans given to people without the lender requiring any proof of the capacity of the borrower to meet the obligations under the loan arrangement," Mr Howard told ABC radio.
"They are very irresponsible loans. "They are quite bizarre arrangements, according to our lending practises. "It's not surprising they have caused this difficulty."
Mr Howard said the fundamentals of the Australian economy remained sound.
"But when you have a stock market shake-out such as this we can't avoid some impact," he said.
"That impact is not due to any weaknesses in the Australian economy, it's simply due to the fact that we're part of the world economy."
Mr Howard said in the US, sub-prime mortgages made up about 15 per cent of total borrowings and as more people had begun to default on loans the companies lending the money had got into financial difficulty.
"That has had a ripple effect on financial markets ... and so the thing spreads around the world," he said.
Mr Howard said he did not expect the problem to have an impact on most lending organisations in Australia.
"As to about 95 per cent of Australians who borrow through banks and other mainstream lending organisations, there won't be any immediate impact and perhaps no impact at all," he said.
Nor did he agree with some commentators who suggested the problems in the US would herald an end to the era of ever-increasing property values.
FROM https://indifferencegivesyouafright.wordpress.com/2009/01/
Question Time
I directed a question to Dr. Henckel:
“Many people have fingered the CRA as the trigger to the crisis saying that the CRA caused large numbers of sub-prime loans to be held by poor (ethnic) minorities who then defaulted. I have read data that said that 60% of sub-prime loan defaults were held by middle-class and affluent borrowers. Is this true and how did they end up holding sub-prime loans ?”
Dr. Henckel replied:
“I would like to see that data. It does not correspond to data that I have.”
At the conclusion of the evening I handed Dr. Henckel a copy of my source which is the article The Community Reinvestment Act and the Recent Mortgage Crisis by US Federal Reserve Governor Randall S. Kroszner, December 3, 2008 .
Our analysis of the loan data found that about 60 percent of higher-priced loan originations went to middle- or higher-income borrowers or neighborhoods. Such borrowers are not the populations targeted by the CRA…Putting together these facts provides a striking result: Only 6 percent of all the higher-priced loans were extended by CRA-covered lenders to lower-income borrowers or neighborhoods in their CRA assessment areas…
In correspondence with Dr. Henckel, he said that he had misunderstood my question at the time and noted that ‘the sub-prime mortgage sector was concentrated in four states – Arizona, California, Florida and Michigan and indeed the majority of sub-prime mortgage holders there were white households.’
When I asked my question, the Sydney Institute audience let out a discontented murmur. I don’t think they were comfortable with the concept that the middle-class or affluent have contributed to this enormous problem. They were quite comfortable with the concept that poor minorities could have.