Quote of the Day: Alan Greenspan on SubPrime, I/O and other exotic mortgages

Wednesday, March 07, 2007 | 10:02 AM

We were overdue for a housing related post, and this quote is simply Astonishing:

"Innovation has brought about a multitude of new products, such as subprime loans and niche credit programs for immigrants. . . . With these advances in technology, lenders have taken advantage of credit-scoring models and other techniques for efficiently extending credit to a broader spectrum of consumers. . . .

Where once more-marginal applicants would simply have been denied credit, lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately. These improvements have led to rapid growth  in subprime mortgage lending . . . fostering constructive innovation that is both responsive to market demand and  beneficial to consumers." (emphasis added) 

-Remarks by Chairman Alan Greenspan on Consumer Finance
At the Federal Reserve System’s Fourth Annual Community Affairs Research Conference, Washington, D.C.  April 8, 2005

There's nothing I can add to his own words that are more damning then, well, his own words.

Wednesday, March 07, 2007 | 10:02 AM | Permalink | Comments (50) | TrackBack (2)
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POP GOES THE WEASEL....The collapse of the home mortgage market, especially among subprime lenders who (until recently) have been eagerly offering risky variable-rate mortgages to questionable applicants, prompts a plea from Reed Hundt: "Help me, reade... [Read More]

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Comments

is greenspan saying anything wrong? there will always be marginal borrowers but financial innovation does indeed push the frontier of that marginal borrower. yesterday's marginal borowwer is a safe credit borrower in part because of the reasons greenspan mentions.

Posted by: sa | Mar 7, 2007 10:39:55 AM

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