[The reason why Barry Ritholtz says Pinto is "batshit crazy" is because of the ludicrous way he cherry picks facts to conform to his own biases.)
Alex Pollock, Before He Hewed To the Party Line
It wasn't always so. Money talked in September 2007, when Alex Pollock, a resident fellow at the American Enterprise Institute, took note of what $10.5 trillion in residential mortgage deb had to say. Testifying before the Joint Committee of Congress, which convened a hearing on "The Subprime Lending Disaster and the Threat to the Broader Economy, " he focused on the numbers:
A systematic regularity of mortgage finance is that adjustable rate loans have higher defaults and losses than fixed rate loans within each quality class. Thus we may array the serious delinquency ratios as follows:
June 30, 2007
Prime fixed 0.67% Prime ARMs 2.02%
FHA fixed 4.76% FHA ARMs 6.95%
Subprime fixed 5.84% Subprime ARMs 12.40%
The particular problem of subprime ARMs leaps out of the numbers. Also notice that FHA and subprime serious delinquency ratios for fixed rate loans are not radically different. The FHA is predominately a fixed rate lender, whereas subprime is about 53% ARMs. The total range is remarkable: the subprime ARM serious delinquency ratio is over 18 times that of prime fixed rate loans.
Source: Mortgage Bankers Association
In the years that followed and in the years that preceded Pollock's testimony, one metric in the mortgage has remained constant; Over time, ARMs always perform worse than fixed-rate loans by a lot.
Source: Federal Reserve
Lewis Ranieri's 35 Years Of Experience
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