A Subprime Mess

Well it's hard to miss the news coverage about the subprime problem. I'm not sure if it's a "crisis" yet or not but there have been a couple of good articles lately. The first is an article in the New York Times that looks at Countrywide Financial Corporation and how it was a major player in the run up to where we are today.

The second is a commentary by Lawrence Summers in the Financial Times that presents some "vital questions" we should be asking regarding how we respond to this issue. The title, "This is where Fannie and Freddie step in", gives a hint at where Mr. Summers leans but the questions are educational in themselves.

I posed a question about to my money manager and got the following bit of information:

Pimco bond managers were in here today and noted
$1 trillion in mortgages will be reset in next 24 months,
or 20% of mortgage market, with increases in [the]
200 bp to 300 bp range.

All combined, these give me a healthy respect for the problem.

Foreclosure Statistics

There are two issues about the current "sub-prime" mortgage market "crisis", for lack of a better word, that I think are worth investigating separately.

The first is the underlying statistical data. I have heard many numbers passed around and newscasters, reporters and pundits are referring to various data points in what appears to me to be imprecise terms. In my mind, there is one important question about this data: How many of these foreclosures are single-home owners and how many are not and thus likely to be investors (aka speculators)? It seems to me this should be an important distinction to make in terms of policy decisions.

The second issue is how these numbers are affecting the credit markets and how are our financial experts dissecting the data? Are they questioning and vetting the data or is fear ruling the day?

In this light, I think Elizabeth Rhodes of The Seattle Times raises a some important points in her article "Numbers from foreclosure statistics company questioned". I encourage you to read it and share any other articles that might take a more critical look as these numbers people are so easily reciting.

I would like to see more of our news media looking at the underlying numbers before they start citing some of these numbers as fact.

Who's doing the hard work?