Duh?

A new Federal Reserve study out this week finds a correlation between higher-priced loans and delinquencies (see Inman News story). This may seem like a no-brainer, but it's interesting to see a graphical representation (click "continue reading" below to see it mapped).

The point isn't moot, because as Congress debates passing a slew of new restrictions on mortgage lenders, the industry has argued that in many parts of the country, it's not the loans themselves driving delinquencies and foreclosures, but economic factors like job losses and those never ending personal issues like unexpected illnesses, divorce, substance abuse, etc...

The Fed study acknowledges that many counties in Michigan, Indiana, Ohio, Colorado, western Pennsylvania, and the southeast were seeing higher rates of delinquencies even though higher-priced loans weren't that prevalent.

There were also parts of Florida, California and the eastern seaboard where you had a lot of higher-cost lending without an associated rise in delinquencies. But that was back in March, and things have changed in many of those places, the study notes.

There's no reason there can't be two stories here --  that delinquencies and foreclosures are driven by economic (and other non-loan related) factors in the rustbelt, and by  unsustainable price appreciation in places where the economy is booming (or at least has a heartbeat). Much of that price appreciation, it seems obvious to many observers now, was driven by loose lending practices (and higher-priced loans).

What would be really interesting to see is higher-priced loan data mapped against price appreciation. The last of the three maps you'll see below if you click "continue reading" is that and more. The map was released as part of a report by PMI Mortgage Insurance Co. this summer ranking the risk of home price declines in the next two years, based on local trends in appreciation, unemployment, interest rates and affordability (see the PMI report and an Inman News story describing the methodology). Not surprisingly, it correlates pretty well with the Fed's higher-priced lending map.

Why do I keep calling them "higher-priced" loans, and not subprime? It's a HMDA thing. You wouldn't understand. Actually, higher-priced lending is a government definition based on Treasury rates -- if you're charging more than 3 percent APR on a first lien loan above the return on Treasury securities with similar maturity, you have made a higher-priced loan. "Subprime" usually refers to the borrower's credit history, not the cost of the loan. So not all higher-priced loans are subprime (although you can bet that most fully indexed subprime loans fit the definition of higher priced).

(Click on these and they'll get a little bigger).

90-day delinquencies:

Higher-priced lending:

PMI house price risk index:

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