The Mortgage Meltdown

http://online.wsj.com/article_email/SB124657539489189043-lMyQjAxMDI5NDA2MzUwNzM1Wj.html

I am attaching an article that was featured in the 7/3 WSJ both on line and in the print edition. Obviously, the WSJ thought as much of the article as I do. One of the major reasons that the UT Dallas School of Management has made such exceptional progress in national rankings over the last several years is the effort by Dean Hasan Pirkul to put in place outstanding faculty. Dr. Stan Liebowitz (Ashbel Smith Professor of Economics) is an excellent example of the quality of that faculty and the research they do.

The premise of the article is that most government programs being discussed to remedy the woes of the housing market are "misdirected". Rather, the evidence from a huge national data base strongly suggests that the single most important factor in the housing crisis is whether the homeowner has negative equity in the house. The point is that the focus on "subprime" mortgages ignores widely available industry facts that 51% of all foreclosed homes had "prime"
loans. Ergo, the suggestions being put forward by the administration and most media outlets - more stringent regulation of subprime lenders - would not have prevented the mortgage meltdown redardless of their merit otherwise. Dr. Liebowitz's point is that stronger underwriting standards are, and were, needed.

As Dr. Liebowitz points out, a significant reduction in foreclosures will happen "...when and only when housing prices stop falling and unemployment stops rising."

What we are doing about those twin factors would be my primary concern and, I would venture to say, could be factors supportive of Krugman's position that there was not, and still is not, enough fiscal stimulus being injected into the economy.