My Take on Sailer

My take on the Sailer piece was that this crisis was caused by a confluence of good intentions and a good track record. Failure is endogenous because people will always extend whatever works until, and only until, it fails. Thus, the effort to create an ownership society, ie increasing home ownership, seemed like a costless way to make the world a better place. Plus, it was consistent with targeting minority home ownership, because lowering underwriting standards disproportionately helps minorities, who have lower than average credit quality. As there were no major losses for home mortgage portfolios for the past 25 years, noting the risks was unpersuasive, especially as the standards seem to morph over 10 years, and any previous naysayers were shouted down years ago. Rating agencies also missed out on the relevance of adjusting the underwriting standards, and no one called them on it. Lastly, the fact that home builders, Fannie and Freddie, are some of the most powerfully connected lobbyists in Congress, ensured this effort was going to accelerate until failure.

I don't see how you could have seen this before the fact, unless you were aware of the change in underwriting standards for mortgages (lower credit rating, no income verification, lower down payment). I haven't seen anything where someone has defended their ignoring the changes of underwriting standards in real time, only a couple statements after the fact that are obviously stupid. That is, I don't know if people were just asleep at the switch, complacent by the low defaults in this space, or they actually did the math and thought it didn't matter. I suppose the former.