Lying With Statistics, Subprime Edition

http://www.nakedcapitalism.com/2007/05/lying-with-statistics-subprime-edition.html

"I am beginning to wonder whether there is a single statistic related to the state of the economy that can be trusted. The latest data point to bite the dust is the widely-quoted factoid that 13% of subprime mortgages are in default. Turns out not only is this number wrong, but the methodology used to arrive at it is ludicrous. The Mortgage Banking Association, the source of this information, classifies loans as prime or subprime based on who originated them. Thus, all loans by New Century were subprime and all loans by Wells Fargo (the biggest full service bank in the subprime market) are prime.
Details from the story "Subprime delinquencies higher than reported" by Matthew Padilla in the O.C. Register: ...

DRCBlogger Response:

I am not surprised to hear this story. This train has been running out of control for over 36 months. When market participants placed more trust in yesterday's strategies - gains became more important than the underlying processes of the business. The industry must get back to basics and recognize the importance of housing as a means to financial stability for all market participants. What we see now is long term funding commitments giving way to investor needs for safety and gains. Basic fears across the market cycle have been fueled by greed.

The only way out of this current tailspin is innovation - new products and new practices. Long-term success for housing finance requires more innovation throughout the market process. It requires market participants to develop strategies around disruptive innovations. It is through disruptive innovations that transcend the market processes that we will create new markets or reshape existing markets by delivering relatively simple, convenient, low-cost innovations to a set of customers who are ignored by industry leaders expected to serve the common good. Who should bear the responsibility for the cost of a house? Who should determine the value of home?

These questions are fundamental to our national housing policies and as such will be critical to secure positive trends in economic growth.

Some emerging market have it right!