Who Could Have Seen It Coming?

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Over at SLOP, Scott Lewis wonders what I think of developer Sherm Harmer's assertion that nobody anticipated the troubles in the subprime mortgage market. Scott quotes Harmer as saying, "We did not anticipate the subprime financing issues," and then, referring to those issues, "It was not on anybody's radar screen. It surprised the best banks, the best investors. No economist predicted that."

Here's what I think. The subprime financing "issue," in a nutshell, was this: lenders had been making loans that were very unlikely ever to be paid back. Then they stopped.

Anticipating that second part just doesn't seem like such a stretch to me.

And while some people were caught off guard when the multi-year erosion of lending standards finally went into reverse, it's simply not true to suggest that nobody saw it coming.

But let's not single out Harmer on this one. Many others have scapegoated the unforeseeable tightening of lending standards for causing the entire housing downturn, despite the apparent (to some) inevitability of that tightening and the even more inescapable conclusion that such unsustainably high home valuations would eventually find their way lower one way or another. As a matter of fact, the Nerd's Eye View has previously berated both the Union-Tribune and former chief NAR propagandist David Lereah for making that very same claim. I doubt we've heard the last of it.

Speaking of the fallout from all that loose lending, a reader responded to my latest foreclosure update to point out that August contained 23 business days while September had only 19 -- a decrease of 17 percent. This is actually a bigger decrease than that of either NODs or NOTs, which respectively fell by 12 percent and 15 percent between August and September. When one takes the number of working days into account, in other words, the upward trend in the foreclosure rate continues unbroken.

-- RICH TOSCANO