Study Claims Subprime Lending Significantly Benefits Maine Economy

[debtcollector`]

Study Claims Subprime Lending Significantly Benefits Maine Economy

October 5, 2006
PSC Info Group 8679
Subprime mortgage lending makes an enormous contribution to Maine's economy each year and recent claims that abusive lending is rife in the state have no basis in fact, according to a study released today by the New England Financial Services Association (NEFSA). The study, which was conducted by the Center for Statistical Research, shows subprime mortgage lending provides 2 billion dollars of consumer spending power each year, equivalent to 4% of Maine's Gross Domestic Product (GDP). This has a significant positive impact on the economy and on jobs available in the state, particularly in the construction, manufacturing and retail sectors. The study shows that in 2004, the amount of money lent in Maine through mortgages with APR's above the HMDA reporting thresholds was 38.9% of the construction sector's GDP, 18.8% of the manufacturing sector's GDP, and 22.9% of the retail sector's GDP.

The new study also analyzed the findings of a previous report on lending practices in Maine, commissioned by the Center for Responsible lending (CRL), a North Carolina-based advocacy group. It found that the CRL report failed to offer convincing empirical evidence that abusive lending practices are widespread in Maine and that the course of regulatory action being advocated by the CRL would likely reduce the amount of mortgage credit available to Maine residents by $200-400 million per year, significantly impacting the state's economy.

The new study cites a number of specific examples of inadequate research and questionable findings in the CRL report, including:

* a section that attempts to assess how many Maine subprime borrowers "should" have qualified for a prime loan, based on an inadequate analysis of only three criteria;

* a failure to control against bias when canvassing the opinions of Maine residents as to whether or not they think 'predatory practices' are occurring;

* a sweeping assessment of the state of foreclosures in Maine based on an inadequate sample of 339 foreclosures dating back as far as 1999, only a quarter of which the study itself deemed to be potentially predatory.

George Wallace, Executive Director of the Center for Statistical Research, was the principal researcher for the new study. He said, "The study looked closely at claims from consumer advocates that abusive lending practices persist in Maine, and explores the Maine mortgage market to gauge the economic effect of subprime lending in the state and whether subprime loans are appropriately priced. The empirical evidence would suggest that the economic importance of the subprime marketing has been underestimated, while abuses have been overstated."

James Demers, President of NEFSA, whose members commissioned the study, said, "It is important that we have a clear picture of the reality of the situation in Maine if we are to make sensible decisions about what is good for the state. Our study clearly shows that the situation is far different from that portrayed by the CRL, and that their recent calls for new, more stringent regulations are not in the best interest of Maine residents. Maintaining wide access to credit is essential for Maine's economic health."

In addition to various public databases, the study utilized the AFSA Database of Subprime Loans, an enriched data collection that includes all of the creditworthiness characteristics of the loans reported by eight major subprime mortgage loan originators.

[collectone]

Whether or not a industry is a benefit to an economy as a whole adds no validity to its overall benefit to society. Example: Organized Crime benefits the economy, does this validate its existence?

[debtcollector`]

Originally Posted by collectone

Whether or not a industry is a benefit to an economy as a whole adds no validity to its overall benefit to society. Example: Organized Crime benefits the economy, does this validate its existence?

Your premise is incorrect -- organized crime does not benefit the economy.

As for your first statement: A stronger economy adds jobs and quality of life benefits to everyone in society, so yes; a benefit to the economy is a benefit to society.

DC

[ecmst12]

In determining whether something is an overall benefit to society, one must compare the benefits to the detriments. If something helps the economy but hurts society in other ways, there may not be a net benefit to society. If the boost in the economy helps create jobs for the educated only, but destroys jobs for unskilled laborers, increases the middle class debt load, and decreases the overall disposable income for the middle or lower middle class, can that be considered a benefit to society overall?

Of course this is all hypothetical only, I haven't researched this subject in detail and can't comment on it specifically, just wanted to point out that yes, something can benefit the economy but still hurt society overall.

[xylene]

Originally Posted by ecmst12

Of course this is all hypothetical only, I haven't researched this subject in detail and can't comment on it specifically, just wanted to point out that yes, something can benefit the economy but still hurt society overall.

It is also very possible for something to seem to benefit society as a whole when the benefit is calculated as SUM OF GAINS / MEMBERS OF SOCIETY.

That formula has room for some very big losses.

It is a perverse elitism couched as egalitarianism

It says to the poor "If you try and dodge this kick to the crotch, then you are wrecking the overall benefit."

"Wrecker... no wonder you are poor. Spoil sport. Go make babies while we burn down your abortion clinc (or at least close it down) I'm off to China to adopt an non american baby, because thats what Brangelia is doing."

Perhaps that is an exaggeration. All I know is I have stiffed plenty of those dot com boom / mortgage secured bond types, and I feel zero shame.

[debtcollector`]

I don't know about these responses. Sub-prime lending allows people who have suffered setbacks another chance. If they are responsible and diligent, they can in a few year get out of the sub-prime market.

DC

[collectone]

Originally Posted by debtcollector`

Your premise is incorrect -- organized crime does not benefit the economy. DC

Let's try Las Vegas, Atlantic City, West Virginia - If you are under the false impression that the gambling industry was not started by organized crime you are mistaken. You would then need to make the argument that this industry does not have a positive contribution to the economic health of the cities in which they operate, you would be wrong again. You can go through history and find many industries that create wealth and prosperity that have roots in organzied crime. (Liqour, Prostitution, Gentlemens Clubs, and the list goes on)

Originally Posted by debtcollector`

As for your first statement: A stronger economy adds jobs and quality of life benefits to everyone in society, so yes; a benefit to the economy is a benefit to society.

Yes, but at what cost. The majority of fees, interest and like charges incurred by those who must turn to subprime lenders are not there to offset the risk inherent in servicing the customer. They are there to milk the customer simply because they have no other alternative but to accept such terms. Sorry, but I have no compassion for a industry designed to maximize profit by milking those of less fortune. Yes, the do provide a needed service, but at an unreasonable cost. I have had the experience of dealing with such lenders earlier in my life and they provided me with my wants (not needs) at a extemely high cost. My use of such sources not only didn't help me get back on my feet but delayed my doing so by causing me to poor income into maintaining a positive relationship with them. I thank God that my situation has changed dramatically since then and I no longer find a need for such businesses.

[debtcollector`]

Originally Posted by collectone

Let's try Las Vegas, Atlantic City, West Virginia - If you are under the false impression that the gambling industry was not started by organized crime you are mistaken. You would then need to make the argument that this industry does not have a positive contribution to the economic health of the cities in which they operate, you would be wrong again. You can go through history and find many industries that create wealth and prosperity that have roots in organzied crime. (Liqour, Prostitution, Gentlemens Clubs, and the list goes on)

Gambling wasn't started by organized crime. It was definitely used by criminals; but mankind has wagered since the first rock was thrown from the cave. The other activities you mentioned also have existed since the dawn of time -- although they weren't called gentlemens clubs. Mostly, it is people serving a need in our society.

Originally Posted by collectone

Yes, but at what cost. The majority of fees, interest and like charges incurred by those who must turn to subprime lenders are not there to offset the risk inherent in servicing the customer. They are there to milk the customer simply because they have no other alternative but to accept such terms. Sorry, but I have no compassion for a industry designed to maximize profit by milking those of less fortune. Yes, the do provide a needed service, but at an unreasonable cost. I have had the experience of dealing with such lenders earlier in my life and they provided me with my wants (not needs) at a extemely high cost. My use of such sources not only didn't help me get back on my feet but delayed my doing so by causing me to poor income into maintaining a positive relationship with them. I thank God that my situation has changed dramatically since then and I no longer find a need for such businesses.

If your credit score is under 650 you probably deal with some segment of the sub-prime market. There are bankers on here that can describe this better than I. If you want to buy a house and have any bad credit -- you are turning to the sub-prime market. Ditto for a car. There is a lot of inherent risk in lending in this market -- hence the need for higher interest. Somebody has to cover the bad debt.

DC