Thanks I was Lee thanks library. Although I'll go for the last few weeks I've been hearing your following Gil and his was on his presentation was amazing and funny and interesting and I get to talk about the collapse of the housing market. So I think the order might have been not beneficial. So where do I began I begin with the ever anybody know what the American dialectic Society named as the word of the year last year. Anybody Sub-Prime a word of the year and I hear. I even hear on the net and students can corroborate this or not that the term is being used like when you fail your exam you sub primed the exam. I tell. My my dad that. It's not as much fun anymore obsessing you're a mortgage market kind of expert or because everybody is now everybody seems to know exactly what a subprime loan is although it argue there. They're often not quite correct. And so it's kind of hard to talk about pieces of this problem. So rather than bore you with some of the more detailed research I've done on this stuff. I thought I would since this is the broader set of knowledge that's been fast and furiously being updated. Because of this crisis and leave you with a sense of not just what this means to housing markets and your mortgage. Although and how we're going to get out of it although I know students really want to hear how we're going to get out of it but also what it means to urban scholarship in urban planning more broadly in the long run. So I'm going to talk about how we got here both kind of longer term but especially shorter term perspective on that and should by shorter term I mean the last five or seven years when things have gotten particularly worse. And of course call made in the last two years of major problems with foreclosures. I'm going to talk about these two items are really where most of my work on this general topic of mortgage markets has gone on in the last has focused on in the last ten years. I do lots of other things but in the mortgage side I focused on the what I call the hyper segmentation of the mortgage markets by race and space and then the social costs of foreclosures because for so many years regulation is taken the perspective that a mortgage transaction is like buying an Oreo it's between you and the store. Nobody else gets hurt if it goes bad. If the Oreo's tainted and I beg to differ and I think a good amount of my work and other folks work of kind of documented the social costs of of dysfunctional mortgage markets. I talk about kind of the the near term recommendations for policy and planning. Not every single one of them. This is a big topic with lots of little details I'll cover some of the big ones that are kind of in play. Now both at the federal level but also at the state and local level and then I'll talk about these broader implications which have to do with globalization and what we what we strive for in terms of homeownership and whether that's a good thing and those kinds of broader issues. This is a snapshot and lots of folks think some prime loans were invented like in two thousand and two or something and they weren't they really started in substantial scale these kind of high risk loans which are high risk either because of the borrowers credit or because of features of the loan that all describe in a bed but these high risk loans really started in the mid ninety's here but in this first boom here. Pay attention just the solid lines first this first boom was almost entirely about refinance loans. It was really only a modest increase in home purchase lending in terms of absolute terms although a percentage wise it was a substantial increase and then we had the Asian financial crisis which some people forget but was kind of the first collapse of the subprime market and it cleared out a lot of lenders specially some very bad lenders and people have short memories and think Well subprime lending is never coming back because it's gone when it came back before it a lot of lenders went out of business. It was. It isn't the magnitude of the crash. Now partly because it wasn't as big of a market. But then in the second boom starting really in an after the recession and the beginning of this decade. You saw a very big increase again and refinance lending this line but also a very big increase and just this steep if not steeper increase in home purchase loans that are high risk and generally the notion is when you get a refinance loan. Especially if it's a subprime loan. There's a lot of homeowner equity left after the loan typically with a home purchase loan that's not the case when you get a sub prime loan for a home purchase loan you usually have very little equity in the property. What does that mean it means it's a much higher risk deal. So a subprime loan is risky period a subprime home purchase loan is even riskier than a subprime refinance lock. So now that we had a different. And this basically says what share of all subprime loans are for home purchase and we basically went from around twenty percent in the spur stage we're now this is only all four by zero six. We were at over forty percent. What does it mean this is what the most recent the second boom has meant for foreclosures this is just metropolitan Atlanta Atlanta as a region is in the upper quarter of metropolitan areas in terms of foreclosure rates. It's certainly not as bad as California and Florida are now but it is bad and we basically are at a level of foreclosures now almost sixty thousand five links foreclosure started last year that is about four times where it was in two thousand and that's certainly not attributable to our population growing at that rate and we saw a substantial increase here and then some kind of maxing out at a very high his. A level and then with the most recent kind of crisis. Another kind of rise and it's funny in the press. You keep hearing well foreclosure is going to continue to rise. It really doesn't matter. They're at such high levels they are pumping lots of housing into the market every time there's a foreclosure taking basically taking a homeowner out of the housing market out of the homeownership market those folks are not going to own a home for at least five years especially from now on and so you've basically added net supply into the market weakening the housing market and even if we were at this level in this kind of housing market this level of foreclosures is very bad for the housing market. And this is happening in all kinds of places. How did you know what happened from the ninety's on in especially after two thousand basically from ninety five on we had this increase dramatic increase in pricing loans much higher for risk and putting in features into the loan that weren't in the kind of plain vanilla thirty year fixed rate loan things or things that are called prepayment penalties that make it hard to get out of the loan once you're in it. Lots of other terms that weren't in the typical loan twenty years ago and made those loans more risky. The interest rates and the fees also made the loans more risky. So you're giving people with sometimes poor credit. Loans that are even more likely to default because of the terms of the loans. So it's compounding risk and then from two thousand and nine we started creating all kinds of additional exotic structures like the loans has a fixed rate for the first two years and then every year after that it can adjust up to five points above the original rate something called an. Floating arm. Lots of other loans where the borrowers income would not have to be documented using Iressa returns that kind of thing that's been a big cause of the problems. A big one lesson and I were just talking piggyback mortgage where instead of putting eighty percent getting an eighty percent loan and putting twenty percent down or ten percent down with private mortgage insurance you get a second mortgage for twenty percent and you have no equity in the in the home. And those loans are priced higher that second loan so it also raises the cost of your loan and then zero down payments. Even if they were the piggyback loan started lots of programs to try to encourage folks to buy homes with very little down payment or zero down payment and some of those programs I think in in the early ninety's were designed fairly carefully especially by Fannie Mae and Freddie Mac.. When they were quite risk averse later on they were less risk averse and they would require counseling for home buyers and limit the amount of stuff they did like that. Well then builders got into the act. There was a builder based in Atlanta that got into this act in a very big way and is under investigation right now by the Department of Justice where they would do things like do things like give grants to a nonprofit then would then turn around and give downpayment assistance grants to fires to buy the home from the builder the builder would get an eye arrested auction and be able to raise the price of the home by as much as that amount and the buyer would get the home at an inflated price price with one hundred percent financing without any equity in the home. And then I've got this sort of logical multiplexer here because these things are sometimes present all in the same loan. Right. Sometimes you have subprime pricing sometimes you exotic features in the subprime loan and you have a piggyback mortgage and as these things combine they interact. They don't add they multiply the risk. So for those loans with multiple of these risk features you have a really big problem. OK this is this is what the quiz is going to be on this is a very dense live and I apologize but this is kind of the evolution of the mortgage market in one slide and why we got here. This is the way it was up until I think it's fair to say roughly the one nine hundred eighty S.. Through the one nine hundred seventy S. for sure. And this was basically the system created by little bit who were in Franklin Delano Roosevelt of mortgage finance one nine hundred thirty two the Home Loan Bank system was created to really create a system a bust. So now it's buildings and loans everybody remember George Bailey in the Bailey Building and Loan from it's a wonderful life that would make a loan in their local community get it back book it on its balance sheet and take a hit to flown one bad right. And where did they get their money they got their money from depositors. And then Herbert Hoover came along and said Well. And sometimes they would get their money to work mortgage companies back on from insurance companies or something like that they might borrow from each other. But whoever came up with this idea will have the Federal Home Loan Bank system which will. Basically borrow money from the banks with lots of money and lend it to the banks without money. The savings the loans without money and that will provide liquidity and move money around the country and that system works pretty darn well for a long time until what created the S. and L. crisis. And then Fannie Mae and Freddie Mac. came along Fannie Mae was created way but. It became real important. Well as important as it was in the late twentieth century it was created in one thousand thirty eight but it. It was just created to buy F.H.A. loans Federal Housing Administration loans and. Add liquidity to those loans and it did that and that helped obviously lots of folks in the planning world know the history of the F.H.A. in building the suburbs. But the F.H.A. was you know twenty percent of the market Fannie Mae eventually became and Freddie Mac. became seventy percent of the market but the dominant part of the mortgage industry and what they did is they. The lender the Savings and Loan of the mortgage company or the bank would instead of holding onto the loan is what we now call a portfolio loan would hold it for a little while. Maybe for not very long at all. Sell it to Fannie Mae Fannie Mae would give it more cap give it money in exchange which it could then lend out again. Right. This is a liquidity turning these long term assets into cash and then. Where does feeding may get its money it gets its money from me you all right. Meaning your pensions and your money in your state institutions like Georgia Tech invest in what's called paper and one of the big sources of paper commercial paper was mortgage backed securities that Fannie Mae and Freddie Mac. Would issue. And these were generally considered and were and still are. I think although we're worried about that now very safe. And so I've got that little picture that supposed to be an institution and basically it. This was not mom and pop investors this was institutional investors pulling monopods retirement and other. Of assets foundations those kinds of things. Then we went into what's called what I call the Private Securities Asian era where now we had lots of lenders who didn't rely on deposits at all because we've created this thing right. They don't need deposits anymore they get money from Fannie Mae and Freddie Mac. That creates a whole industry of what are called mortgage companies but also banks and savings and loans also can use to mean any man Freddie Mac.. But they realize or somebody realizes and this was partly it came out of the Savings and Loan kind of mass that we don't need Fannie and Freddie to do this. We can do this Wall Street can do this Wall Street figure this out. And not only can we do it. We can do it to a much for a much broader spectrum of the risk. Than Fannie Mae and Freddie Mac. are willing to take on realize Fannie Mae and Freddie Mac. are what are called government sponsored enterprises so the notion is if they failed the government would essentially bail them out. Right. This was they were kind of too big to fail. So as a state as a result Congress is watching them making sure that they're not getting too risky all nobody is doing that to Wall Street basically. Maybe maybe you know all Wall Street is regulated for as well or they put things in this big thick pack of paper that they send you and you never read and that's pretty much the only way they're regulated so they what they do is they put all the loans like me and Freddie into this thing called the trust or there's lots of more technical terms for it and then they say OK I'm going to take the really safe loans and put them up here and Standard and Poor's is going to call those that pool of loans that said pool. AAA rated really low risk then I'm going to put. Next risky loans and here. Those are going to be higher really because AAA W A A B. triple B. down and then a little bit very little I'm going to hold because that's going to convince senior employers and investors that if the loan start going bad these loans are going to I'm going to take the riskiest loans and I'm going to take the first loss. That's called the first loss. OK so now you have a system where you have a low risk investors can buy the AAA higher risk investors what we now call mostly hedge funds take the higher risk and that's up to them they're taking the risk seems to work. Well this started the subprime industry. OK in the ninety's this was the first boom. And now we have the second boom that was really created in the post two thousand by what's called the structured finance industry. OK so now we've got this great article in Bloomberg News about how in one thousand nine thousand and one or two thousand to two thousand and one these Wall Street guys had a Chinese takeout meal where they all came up with collateralized debt obligations for mortgages that already work collateralized debt obligations there were a few for mortgages but the way they were structured post two thousand and two was supposedly invented at this Chinese take out meal. I don't know what. What part of Wall Street or I don't remember the firms. But they say OK look at we've got a sow's ear over here this is B B B and below security this bond. Nobody people don't. I've got investors with tons of money because you have all the good chunk of you all are ready to retire and really want to invest in something that makes a little bit more money than sticking it in a CD. So we have tons of capital and they say. I want they come to me I meant Wall Street. They say I need to invest in something and I like mortgage backed securities. But they need to be AAA. Or they need to be double A. And they say what if we take all the triple B.S. and below pull them all together and then create a new kind of bond where this senior traunch as it's called gets takes the last across the lower Ciancia as a Bonds groups of bonds take the first losses. So by this way you take the underlying bad mortgages has the investors call them the risky mortgages but if you give everybody senior position first dibs on them and you pull them together you then call it a AAA security and the credit rating agencies went along with that. So we were selling prudes of loans to municipalities there's been a lot of stuff in the press and how municipalities are now losing money and states losing money on some prime securities because they bought them as AAA bonds and yet underlying all this was very risky stuff. So the first forty percent of garbage is still garbage is kind of the the lesson that we get out of this. You know you can you can get only the top part of it but if it's all fundamentally very high risk and there's a report out yesterday by Fitch Ratings it is now projecting from now on all the ongoing foreclosures that have been for loans that have been foreclosed so far they're originated in zero six and zero seven fifty percent foreclosure for the subprime loans. Because a lot of those haven't hit. What's called the interest rate reset and already vulnerable. This is what happened with this explosion of capital going into this industry. Chasing Basically the short answer is capital chasing borrowers. We had. And why does Capital chase borrowers let me go back here at every stage at every stage guess what somebody is making a transaction fee and almost at every stage in this complicated this two stage thing here. The only folks that are taking a real risk are the end investors. So the folks that are packaging this stuff. This residual here is probably less than one percent this activity here is less than one percent. They're taking very little risk. The folks that are kind of arranging the stuff and creating the channels but what happened was OK this was already risky. This is the percent of subprime loans that had either very little documentation on people's earnings were not on and went from under thirty percent which was already very high had been going up in the ninety's to over fifty percent of subprime loans being limited documentation or no documentation that to income ratio those These are average is so you know they're close to medians stuff is fairly normally distributed and this is the debt to income ratio so this is you know that your monthly mortgage payment insurance and taxes. Compare to your income for the month. He used to be I still teach out of real estate finance book that says thirty six percent is the maximum. Maybe thirty eight F.H.A. is kind of thirty eight sometimes forty. This is the average for some prime loans was already and again it had gone up earlier was already almost forty percent no one and then by zero six was up almost forty three percent over forty two percent and again that means there are lots of loans that are over fifty percent. Debt to income. And you know that may be OK when you're making a million dollars a year if you want you know you still got the residual of the other fifty percent to live on. But when you're making fifty thousand dollars a year. Not too good. One of the myths that I don't put in my list of miss is that every subprime borrower quote unquote subprime loan went to somebody with bad credit and they're deadbeats. Wall Street Journal did a very nice analysis of data that I can't get very expensive and hard to get data that basically tracks sub prime loans. Most all those all those to securitised. Traunch subprime loans in the country and what you saw is because of this push of the capital markets into the sub prime market. It used to be that most of the loans these are credit scores lot every I don't need to explain credit scores everybody knows what credit scores are now which is nice. I used to have to explain that. But basically about seven hundred is kind of stellar six sixty is very good. Six twenty is good is where the used to be the prime sub prime cutoff was basically six twenty sometimes six forty. But what you see is by two thousand the seven we've got twenty five forty three sixty two percent of loans above six twenty of subprime loans about six twenty even if you take out these You've still got eight hundred nine hundred thirty seven percent of subprime loans with really very solid credit. Why is that why are people getting prime loans two reasons. Fundamental classes of folks. One is their stated income loans or the very exotically structured and so they just are by default only going to be made in by a subprime lender. It's priced out of some point in a percent prime or a so. It's the nature of the loan. And why people are taking at you know they they get a loan that has a piggy back in California. It was because you couldn't buy a house any other way without getting a second or third loan but these are common all across the country a lot of this is driven by the frenzied housing market. I got to get a loan as big and as fast as I can and if you want that you go to the sub prime lender there faster that give you a bigger loan. Even though it's a higher interest rate it makes your loan payment even more they will do a higher loan to value ratio the other group of folks who just got. You know made bad decisions if you want to call it that or got settled on a loan and former F.H.A. commissioner Harvard Joint Center now says sub prime loans are bought they're sold right there. They're pushed and the other thing about this is seventy percent of the eighty percent of these loans seventy eight percent are made by mortgage brokers a mortgage broker basically works on what's called the you will spread premium. He gets the capitalized difference between the interest rate you pay. He or she and the interest rate that the lender charges him or her. So the higher price so he gets a loan priced at six at five percent. And if he can sell you six and a half percent instead of six percent. He makes fifty percent more because that difference is capitalized in as a as his or her fee so they have an incentive to steer everyone into the highest cost loan they can. That's how the system works. So from a spatial perspective this is out of a Jap a piece Journal American Planning Association piece that just came out and I did this before. With This is two thousand and six quarter one foreclosures divided by loans made no three is kind of a standard guys are and what you see and then this is the proportion of loans in the market made by some prime lenders and what you see is even though in California and these are mostly California cities you see. High cost cities the red dots are high cost cities a lot of them in the last. Even though they had very high sub prime ratios twenty five percent of the home purchase loans being made by subprime lenders compared to Atlanta which had less than fifteen and some of these other cities these cities had much higher foreclosure rates than a year later this axis moved right up here. And now these cities. Lots of them are up here. Why because of what I'm going to call the virtuous cycle. Got stopped and I'll explain that. I'm using virtuous in quotes because this is not my idea of virtue. But this is the term that's used in pricing markets and kind of pricing analysis is you know when home values rise. It becomes harder to buy a home. So what happened in California and other places. Also in Atlanta just not to the degree as Florida and California and the East Coast. Lenders say we will create affordability products we will let you have a higher debt to income ratio which is what I showed earlier that means you can now afford that loan. We will let you get a no doc loans so you can say you made ninety five thousand dollars when you only made seventy five thousand dollars right. We will put in these. Second and third mortgages to allow you to afford. One percent or zero percent downpayment. What does that mean that means it's an affordability product your purchasing power increases. You have some degree of fixity in land little urban economics want to learn especially in places like California where you have lots of growth controls more money going into the same amount of land prices go up. Right. So the financing people say well the home. The foreclosures are happening because prices are coming down prices are coming down because also because there is no more debt to feed the cycle. So what happens is the vicious cycle starts values get pricked somehow something happens right. Something happens to stall that it that growth in property values all of the sudden it's harder to refinance your home you become what's called upside down in your home or your mortgage is bigger than your house the value of your house your due. That's when California foreclosures were foreclosure rates before two thousand and six were. Infinitesimal in lots of parts of California. If you got in trouble you sold your home or you refinanced into one of these products. You can't do that anymore. And so all sudden you have serious problems. The foreclosure start to lenders to bail liquidity dries up and then this all culminates in some of this past year in just credit market paralysis and that really causes purchase power to decrease and what this Standard and Poor's Case Shiller Index just came out yesterday and I quickly looked and I mean twenty percent twenty two percent annual declines in prices in California and it's not over. So and. It's interesting just I guess there was a homebuilder. Forum here last week saying things are calming down. I looked at Atlanta's Atlanta has just hit peak and is headed down. We're just now kind of confirm that the last quarter of zero seven is headed down. We don't have nearly as far to fall but it's also happening. I don't know how doesn't show up as well as I had hoped. That's just a good lesson I'm not using Google Earth I guess but this is a city of Atlanta foreclosure filings in two thousand and one and this is two thousand and seven dramatic increase and. I just read a piece saying you know. This is just city. I've got a J.C. map of the suburbs I show you in that over the region. Certainly happening in the suburbs too especially places like south the cab. But this is clearly that the reason these are concentrated in places like the southwest side and the west side in other parts of the south side is because the subprime lending was concentrated right. That's where the lending was and you'll see that in a minute this is the Kerry team gardens work who is really I think. Probably the best in the country in terms of local journalists on this stuff that I've seen this is percentage of all home mortgages that were sub prime in two thousand and five and you can kind of see that correlation with race and space. Although it's not just an urban thing very high rates in. You know less affluent to some degree more residentially mobile parts of places like with Nat and Cobb. But you can see the kind of spatial correlation between the foreclosures in two thousand and six. This is two thousand and six and most of two thousand and seven and this is normalized by mortgage by units housing units with a mortgage. So it's a pretty reason reasonable measure. And so that's you know these dark red. Nine percent of the units with a mortgage went into foreclosure in an eighteen month period. Roughly eighteen months. This is happening all over the country housing markets that are strong housing markets that are weak the weak markets are the worst the weak markets are specially the worst and what happens afterwards meeting in New York City. Something has been lots of foreclosures. But the market is still so strong that people buy them right. They don't become vacant. Some people are suggesting it's kind of fueling a new wave of gentrification because it's cleaning out incumbent residence and giving opportunities for new residents but the dash lines here are minority neighborhoods and then you can see the subprime loans concentrated there and again highly correlated kind of specially correlated with foreclosures. The year after and that's a reasonable period for this one latest wave a lot of loans going into foreclosure in twelve months or less. I did some analysis of Atlanta foreclosures at the end of last year and it was about fifty percent of the foreclosures at the in November and December were going into foreclosure in less than twenty months which is kind of on HEARD OF WHAT DOES THIS MEAN start getting into lots of issues one of the big justifications for subprime lending and not leg elating it was this is helping minority homeownership. It's been a big thing. Well we did hit an all time high in African-American homeownership in zero four and maybe that was supported by sub prime but it's we're back to the two thousand rate and I think we're headed back to the one nine hundred ninety rate. How did we get from here to here. It wasn't sub prime lending it was CAREFUL OUT FOR by policymakers by Fannie Mae and Freddie Mac. to. Lower down payment some yes do it carefully. C.R.A. commune Reinvestment Act in force Mint was increased fair lending in force meant fair housing laws were enforced more. So I think that was to some degree a sustainable boost. I don't think this was a state sustainable boost and the question now is how far we go back down. And then a lot of my work has focused on the top set of impacts of foreclosures. Although not the top one making claims and has done some work showing that foreclosures lead to neighborhood transition racial transition at fairly hefty rates. I've done work showing foreclosures lead to vacancy in the vacancy leads to crime. Neighborhood property value of facts as I kind of refer to Already this stuff is spatially concentrated so it has particularly and we could housing some markets particularly strong impacts and then lap car and other folks have done effects on all that property tax revenues are kind of obvious when the values fall but. He's finishing up some work here in Atlanta has done work in Chicago and showing the cost of the abandonment that comes out of the stuff the kind of just fiscal costs and then now what we're seeing the new lot you know the new kind of ramifications of the total of that really. New quantum leap in level of foreclosures as we're seeing you know on the investment side cities and states are taking have. What does this do to you know credit markets are freezing up. It's very hard to get a loan with a need and marginally we credit score. There's a report out that Fannie Mae is looking at certain zip codes. And requiring bigger down payments in certain codes that used to be called red lining. But I guess in this environment. Access to credit for. Small firms are starting to especially if you're in the construction industry government there was just a freeze on the auction mortgage auction finance market. That was in the papers last week and then the thing that I'm really interested in is and we have not great data on is what's happening in terms of we're we've just over ten years and there's some evidence that credit scores particularly in minority neighborhoods have seen an aggregate shift downward as a result of this stuff and credit scores are now used in employment markets and rental markets and insurance markets. So it has this kind of holistic a back that could be pretty damaging. I'm running a little bit weak. These are the big kind of miss I was telling Leslie when we were talking earlier you know it's very depressing to see ran a story on a family in Gwinnett that lost their house because they had to pay a sick child some medical bills and the blogs on that article were like well they shouldn't have had so many kids and it's There was it was it's it's brought out. I have to say this whole thing is has been partly depressing to see as much of venom thrown against borrowers in this stuff. We had a system that relied on lenders and investors making decisions about what should what loans should be made not borrowers. And I say yes I would have taken that loan or and you did because you were dumb. That's not the way it worked. The lender was supposed to underwrite the loan and do it and with government supervision. We had a mixed economy that worked very well with heavy involvement in the federal government the thirty year mortgage was created by the federal government. It was a system that worked well. Let me kind of talked about these this thing that the Fed Alan Greenspan was asleep. At the wheel. He wasn't asleep at the well he drove the car off the cliff. He knew what he was doing he wrote on the stuff. He wrote on the excesses of the industry. Ned Gramlich who passed away recently was on the gov of policy professor at Michigan was on the Fed board. Tried to get some changes made Greenspan said no this is a this is not like some bureaucratic process is the heavily lobbied financial regulation. This is this is brute force politics the industry. Resisted heavily and he kinds of times that regulation congressionally or at the regulation level and we're paying for it now. I don't have time to talk about the disclosure thing it's kind of too complicated but basically what I said about the F.C.C. stuff the security stuff is the way we regulate mortgages now as I give you a stack of paper lists anything in there you're responsible for and if you sign it. That's your problem. And it doesn't work. Whether you think that's a good model or not it doesn't work. I want to tackle this one this you know should we do what should we do about the mortgage crisis. They got into it. It's their fault. I don't get any benefits from government. Why should they. And that's you know planners know the first one all kinds of subsidies for homeownership that we all of us homeowners benefit from. But the ones that people don't talk about as much as a very expensive infrastructure that regulates the prime mortgage market basically doesn't regulate the subprime market that's been around for many years. The whole legacy of investment in Fannie Mae and Freddie Macin the Home Loan Bank the F.H.A.. Which you know basically Kareen did high rates of home ownership all those things together the whole kind of investor regulatory structure and then deposit insurance which is one of those I have to do with know one of the reasons banks can make loans and save and what we now call three. Can make loans as they get lots of deposits they they can use to build up their balance sheet. That are government guaranteed right and that creates strong balance sheets that they can then borrow from and do lots of other things. Lots of detail but what this is basically saying is there's lots of ideas at all levels of government we can't solve this problem at the state local level that doesn't mean state locals can't do stuff about it. The big things kind of being talked about now there's a bill that's being debated right now in New York Times did an op ed yesterday. Allowing single family home owner occupied on occupied mortgages to be adjusted in bankruptcy court. If you have a second home and you default on your mortgage and you go into bankruptcy. The judge can say OK I'm going to take that mortgage. It should have been made at that level the lender was irresponsible. I'm going to take it from one hundred fifty thousand to one hundred thousand and now you can afford it they can do that they can't do it for your own occupied home. It's the only piece of debt that they can't do it for. And the lender say well that's what makes mortgages cheap and I say well then mortgages are too cheap right. I would rather a system that treats mortgages like other debt when the lender makes a bad loan the bankruptcy judge should go and be able to go in and that's the only place we can do this really meaning after the fact is in bankruptcy. I do think we need to kind of go back to the kind of plain vanilla thirty year fixed rate loan is the standard with not saying nothing else can happen but making it harder for lenders to do other kinds of loans. We need to regulate credit rating agencies for sure they are very powerful. From a federal and state and local perspective even we need to figure out what to do with the aftermath the recovery. Georgia is has a foreclosure process that's. Just a little over a month and that's way too fast but Ohio has a foreclosure process than some parts of the state is taking two years. That's way too slow. It needs to be in-between. I want to spend just a minute on. The first one is you know I get these missives from the Georgia Planning Association or the A.P.A. on what's going on in the state or the feds and I never see anything about bankruptcy law or mortgage stuff say well that's not planners job. You know you can do all the land use planning you want and design all the design you want and then when this stuff comes in. It could devastate any plan. The first thing I wrote on this stuff was I said I called it the young doing of community development. So folks had tried Neighbor Works and neighborhood housing services and put tons of money into lots of neighborhoods over thirty years and then in lots of these neighborhoods in the first five years of sub prime all of their work was pretty much shot vacant housing destroyed neighborhoods that were doing pretty well because of their work. So what I'm saying is we have to think at broader levels because we're in a global financial and regulatory environment. Lots of folks and kind of urban geography world have speculated you know the financial ization of homeownership I mean you go to cable T.V. and you can see five shows on how to flip houses and make money and you know this stuff didn't exist ten years ago and it's not owning a home to have a place to live anymore and maybe you'll save some money that way. It's owning a home is a transaction as an investment as a commodity to get the wealth right. So we've kind of taken the wealth building of homeownership to an extreme. I don't know how many talk to you have a friend who has bought four houses and used eighty twenty mortgages and he's done just fine. And it does seem to be. We've really changed the nature of what we mean by homeownership. This one. I don't have time to talk about it's a little deeper in terms of what do we think about you know that the general kind of growth machine montra and what it means for neighborhoods in terms of yeah it's great if neighborhoods grow but the ones that grow too fast. There's going to be a reckoning and the reckoning could be a lot worse than the benefits of the growth. And then folks who know Henry George. From the turn of the one nine hundred twentieth century. You basically said we should tax. We should basically fund everything through property taxes on land and on buildings. And there's a lot of wisdom in that in terms of that's where the money is that's where the wealth is the problem is and I don't want to saying bad about property taxes in the state right now but the problem is that land values are fickle and are submarket arse sub local So if you have a crash in a particular market. What does that do to your taxation there's all kinds of public finance ramifications of this stuff and California is feeling it very hard right now. So basically the wisdom of property taxation is being called into question in the volatility of this market. What I'm working on now is kind of regional meeting metropolitan regional responses how different places are responding to this crisis. Both on preventing any more of it and responding to the kind of vacant properties that are being created lots of issues in terms of property tax assessment values have gone way up. So your assessed value goes way up and there's always a lag of one or two years. So you're getting this tax bill that went up by fifty percent in California but your value has just gone down by fifty percent. So you're effect of tax ration so. Rate of taxation has just skyrocketed and that's causing all kinds of problems and assessors don't know how to deal with it and then I'm kind of doing a big picture manuscript on this over the next few months to kind of take it apart and say what it means for these bigger issues about have we pushed homeownership too far when when does it make sense to push it. When does it make sense not to push it that kind of thing. Sorry to go on a little longer than. Less than OK sorry. Jamie. Well there's basically Standard and Poor's and Moody's and Fitch these three companies that rate all these securities that and the reason that folks invested in these mortgages is because those companies said they were extremely safe and gave them a AAA rating. There's essentially no regulation of those companies and they have extreme market power. What they say goes and they blew it. I mean some if there was this most recent thing in the last couple years the single you know if you have to say a private sector actor I would always I'm going to say the public sector is ultimately at fault here but the private sector actor that contributed most where the credit rating agencies. Good question. Yeah they are being sued by some investors but they have so many disclosures and their processes sang You can't sue us. It's pretty hard to go after one of the issues also in Congress is rather to make issuers of these bonds just a lot more of the debt that residual at the bottom. Instead of being one percent might be have to be twenty percent and. If you want to be lower. You're going to have to make a case rather than just letting them do whatever they want with it. Chuck that I am in favor of this increase in the homestead exemption because there's the work I did on the ballot. Why you know folks are seeing fifty seventy five percent property tax increases in one or two years. I just saw some new numbers out of the beltline Tad that say it's even worse than that and you know and A by creasing exemption you are definitely going to help the lower income buyers much more than the higher income buyer so I think that's a good thing but you know all kinds of talk about volatility sales taxes are even more volatile now in Illinois. When I left all night eight years ago the move was to get rid of reduce property taxes and put income taxes. I'd probably be in favor of that but that's not going to happen here. I think marginally Actually I think this is the big kind of mistake in the media is is Alan Greenspan did this by lowering interest rates. It turns out that that the Fed funds rate has a fairly small effect it has a very small effect on long term rates because those are affected by inflation and other things which the Fed can affect maybe around the edges the adjustment rate mortgages are set by something called the libeler rate out of London and it turns out that that what was really happening was Pete. Well we're not requiring enough compensation a ball of the federal funds rate or the libel rate for the risk. So the risk premium on the rates were not high enough so the base of that rate doesn't really matter as much. It's the RISP Remember should have been much higher. So actually interest rates were too low on subprime loans is part of the problem now is it helping to lower the federal funds rate it's helping some folks a little bit about three quarters of a point on an adjustable rate mortgage but if your rates going up by three points. You know going up by two and a quarter. I don't know if that's helping a whole lot but no I completely think the Fed is besides the credit rating agencies that the public sector wise the Fed is at the top or less not because of those issues though because they are the main supervisor of regulations and they went through a regulatory process in two thousand where they could have done lots of things to slow this down and they chose not to meaning they could have regulated landing in a real way. And the other questions. Really. I think regulation of the mortgage market generally part of the problem is you know even I talk about subprime but there's a lot of these exotic features that are in court unquote prime loans to. I definitely think the burden to make those kinds of loans must be much higher so and that's how the regulations basically work is they basically say if you make this kind of loan you don't have to worry about it. But if you make this kind of loan you've got to do this disclosure and this disclosure and you know they make the burden higher where they need to move a lot more loans into that second bed and they didn't. That's what they chose not to do this. So in question. Unfortunately the answer is mostly no but I had a point up there. I didn't get to which is one of the things that I've been pushing and Alan Malik from national housing and Souza. Isn't pushing well local government should do is say look at this stuff is costing us money because it leads to abandonment leads to property values we should tax foreclosures and there is some logic I've talked to a number of people who think localities could tax foreclosures more. And what that might do is get lenders right now all the talk is Are lenders modifying loans. Well if they have to pay a tax on filing it might encourage them to modify along. Whereas they wouldn't otherwise. And it's justified based on the public cost that's being imposed by the foreclosure. But most of them fortunately most of this stuff. Even when states try to do something Georgia tried something in two thousand and two under burns two things happened one is the federal regulator said you can't do that. It's our business and they preempted which is a big issue in all kinds of regulation these days States. You know States not being able to regulate and the second thing is Sonny Perdue came in and pulled back the law because ironically the law said that standard that the investors would be liable for any problems with the loans and STAYNER Port Said then we won't underwrite them. Well the irony is that might have solved the problem. It would have through the S. and P. to look harder at the loans much harder.