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Fall 2009

ISSN 0890-913X

Volume 25, Number 1

Categories: Economics | Fall 2009

It’s Not Just Subprime!

Ramon P. DeGennaro, University of Tennessee

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It’sNotJustSubprime!TheJournalofPrivateEnterprise25(1),2009,23-30RamonP.DeGennaro*UniversityofTennesseeAbstractManywritershavebeenquicktoblamethehighrateofforeclosuresonsubprimemortgagesonwhattheycallgreedy,predatorylenderswhoexploitedpoor,unsophisticated,anduneducatedborrowers.Theproblemwiththisinterpretationisthatitcannotexplainthebehaviorofforeclosureratesonprimemortgages.Examiningtheforeclosureratesonfixed-andadjustable-rateloansoffersabetterinterpretation.JELCodes:G21,L85Keywords:Subprime;Mortgages;PredatorylendingTheproblemswithsubprimemortgagesarewell-known,withmanydefaultsandrepercussionsforbusinessesandinvestorsalike.Manywritershavebeenquicktoblamewhattheycallgreedy,predatorylenderswhoexploitedpoor,unsophisticatedanduneducatedborrowers(forexamples,seeLillich,2001,andPICONationalNetwork,2009).Thisisunsurprisingbecauselendershavebeenaccusedofmanysimilarsinsinthepast.Forexample,thefurorfollowingthepublicationofMunnelletal.(1996),whichhasbeenwidelyinterpretedasevidenceofracialdiscrimination,iswellknown.Yetotherinterpretationsofthedataexist,withHorne(1997)beingaprominentexample.Blacketal.(2003)reportthatminoritiespaylargeroveragesoryieldspreadsthanwhites,butattributetheresulttodifferencesinthepoolsofborrowersratherthantoracialdiscrimination.Blocketal.(2008)arguethatracialdiscriminationisunprofitableandthatincreasingcompetitionisthepreferred*Figuresarereprintedwithpermissionfrom“AnatomyofaTrainWreck:CausesoftheMortgageMeltdown”byStanLiebowitzinHousingAmerica:BuildingOutofaCrisis,editedbyRandallG.HolcombeandBenjaminPowellandpublishedbyTransactionPublishers.Allrightsreserved.©Copyright2009,TheIndependentInstitute,100SwanWay,Oakland,California94621-1428;www.independent.org;info@independent.org.IthankKerryLynch,MarciaStamellandWalkerToddforhelpfulsuggestions.Anyerrorsaremine.23

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Title	It’s Not Just Subprime!
Authors/Creators:	Ramon P. DeGennaro, University of Tennessee
Year:	2009
Volume:	25
Number:	1
Pages:	23 - 30
Publisher:	The Association of Private Enterprise Education
ISSN:	0890-913X
Document Type:	Articles
Keywords:	Subprime, Mortgages, Predatory lending, Economic recession

Citation:
DeGennaro, Ramon P. / 2009. "It’s Not Just Subprime!." The Journal of Private Enterprise, 25(1): 23-30.