The fact is, theTimes has been hitting the subprime issue harder and longer than Forbes, Fortune , The Wall Street Journal, The Financial Times, and other publications devoted solely to business and financial news. This should not be, but it is. The Times has a large business staff, but it is not really part of the business press. It’s a general circulation newspaper. It also has a good sports section, which is more than the business press can say.
It’s not that other coverage has been bad. But this is better. A story in April told us that while the mortgage industry touted as recently as January the benefits of subprime lending as a tool to raise homeownership rates, it will actually serve to decrease those rates. The Times, led by the indispensable Gretchen Morgenson, explains the trapdoor terms of the deals: “reset” rates that would raise monthly payments, prepayment penalties that preclude refinancing, and no escrow accounts, so property taxes aren’t set aside, making monthly payments seem lower than they are. Those loans are not doing borrowers a favor, and lenders know it.
But according to experts on lending practices, the products devised to propel homeownership did so only as long as housing prices kept rising. Now that prices have started to fall, these products look instead like a transfer of wealth to mortgage lenders from those who can least afford it: subprime borrowers.
I like, too, the Times’s unapologetically quoting the nonprofit Center for Responsible Lending in the story; too often the business press ignores nonprofits and trial lawyers, believing them to be biased whiners, which is fair, except that it also describes most companies and trade groups, too.
My point is that anyone who really wanted to know about the mortgage market would have done well to read the Times in recent months. This thought, for instance, came in early March:
‘The problems are far broader than subprime,’ said Josh Rosner, a managing director at Graham-Fisher in New York and an expert on mortgage securities. Mr. Rosner says he believes that, absent a huge jump in home prices, investors will soon recognize that credit quality problems have also begun to seep into ‘the upper tranches’ of the loan market.
I’m not saying others didn’t write about it.
Bethany McLean flagged credit-rating conflicts in Fortune back in April.
Forbes made a good call on Countrywide in 2004:
The Art of Unhatched-Chicken Accounting; Mortgage firms’ dubious assumptions” Elizabeth MacDonald 15 March 2004
Just before it made a bad call on Countrywide.
Fastest-Growing Big Companies: Countrywide Branches Out Beyond Mortgages, April 16, 2004
Eisinger’s piece in the latest Portfolio moves the ball forward by showing just how entangled rated and rater became, by reporting that the agencies actually help “structure,” or write the terms of, the securities they are rating, through what the agencies called an “iterative process.”
I like the headline: “Overrated: The subprime-mortgage meltdown could—finally—end the credit-ratings racket”
And much credit must go to Business Week (also owned, as it happens, by McGraw-Hill) which took a hard look when it counted:
When Home Buying By the Poor Backfires; For many families, a house can be a bad investment By Peter Coy 1 November 2004
And this one two years ago:
HOUSING THE MORTGAGE TRAP; Lenders are cranking out an ever-growing array of financing schemes and lowering standards to keep the boom going.
By Dean Foust, with Peter Coy in New York, Sarah Lacy in San Mateo, Rishi Chatwal in Atlanta.
27 June 2005
The best, I thought, was the work of Business Week reporter Mara Der Hovanesian, who wrote last year, among other things, about abusive mortgage-industry lending practices. Other business publications are only beginning to catch up.
The ‘Foreclosure Factories’ Vise; The predatory tactics of some mortgage servicers are squeezing homeowners