Business Prof to Testify in DC on Mortgage Crisis
Liebowitz Criticizes Claims About Safety of Relaxed Lending Standards
June 12, 2008
An opinion piece penned by a School of Management professor and published in the New York Post caught the eye of Republican congressional leaders and has led to an invitation to testify before Congress this week.
Dr. Stan Liebowitz, the Ashbel Smith Professor of Economics, is scheduled to speak Thursday before the House Judiciary Subcommittee on the Constitution, Civil Rights and Civil Liberties. The committee is holding a hearing on enforcing the Fair Housing Act of 1968.
At the height of the U.S. mortgage meltdown this past winter, the New York Post ran a commentary by Liebowitz, in which he placed the blame for the housing crisis on federal regulators who, he says, promulgated false claims that new relaxed lending standards were just as safe as older ones.
“Perhaps the greatest scandal of the mortgage crisis is that it is a direct result of an intentional loosening of underwriting standards – done in the name of ending discrimination, despite warnings that it could lead to wide-scale defaults,” Liebowitz wrote in February.
On Thursday, he will testify about the history that led to these new lending standards, including a landmark study from the early 1990s by the Boston Federal Reserve Bank that supported reforms, but which Liebowitz and his UTD co-author Theodore Day say was deeply flawed. In 1998, they published their critique in an article “Mortgage Lending to Minorities: Where’s the Bias?” in the journal Economic Inquiry.
In addition, Liebowitz may also testify about some recent research for an article he is writing about the mortgage crisis showing that prime loans have been deteriorating at a slightly higher percentage rate than the subprime loans. Subprimes loans are at more risk for defaulting than prime loans because they are generally made to less credit worthy customers. Liebowitz says the rate of defaults among subprime loans has almost tripled since 2006. The rates of defaults among prime loans, however, have more than tripled, but because defaults are always much higher for subprime loans there has been little general awareness of the defaults in the prime market.
“It is wrong to assume that the subprime problem has overflowed into prime loans because they both started going bad at the same time,” said Liebowitz. “I think the increased defaults in primes are big news because it indicates that the whole system is under stress.”
Liebowitz is well-known for his work on issues related to intellectual property and innovation and his research has been the focus of news stories in national publications such as the New York Times, The Economist and BBC news programs, as well as being cited in the U.S. Supreme Court’s recent Grokster decision.