Toyota and Tech Advance

From the Green Car Advisor at Edmunds.com (hat tip: C-J)...

Toyota Motor Corp. has shown reporters in Japan a hydrogen fuel-cell vehicle that has more than twice the range of its present FC model -- thanks to more onboard fuel storage. The increase, to 484 miles from 205 miles came after Toyota engineers installed new, larger hydrogen fuel tanks...The new tanks hold fuel that's pumped in at a higher pressure —for more density—than before...The range would make Toyota’s fuel-cell vehicle competitive with most conventional gasoline vehicles in terms of range between fueling stops.

Fuel cells, which convert hydrogen and oxygen to electricity that can be used to power traction motors for electric cars, are being developed by most major automakers as they search for pollution-free alternatives to today’s petroleum-burning cars and trucks. While production of hydrogen consumes energy and creates emissions at the fuel-making stage, the only tailpipe emission from fuel-cell motor vehicles is a dribble of distilled water.

Lack of a hydrogen fueling infrastructure, however, is likely to hold back widespread use of fuel-cell vehicles one the technology is refined for mass produced cars and trucks.

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a very useful WSJ data-set on sub-prime/high-risk mortgages

A very cool data set from the same WSJ article-- in the form of an interactive map...

In each state, there are data for:
a.) the number of high-risk loans (not that interesting since it's not per capita or normed in some way to account for population)
b.) the percentage of high-risk loans-- the number of individuals impacted
c.) the dollar volume of high-risk loans-- the impact on the industry

Data are recorded by state and by metropolitan area within states.


Here's one other data map produced for the article...
























Thanks to the WSJ for their impressive work on an important topic...

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it's much broader than you think: sub-prime/high-risk mortgages

Yesterday, I blogged on the numbers, some moral/ethical considerations, the racial angle and public policy possibilities.

Now, for more on the sub-prime mortgage problems, an excellent data-driven and investigative piece from Rick Brooks and Constance Mitchell Ford in Thursday's Wall Street Journal...

In a nutshell: it's a national thing-- from rural to urban, from poor to rich borrowers, from "homeowners" to investors, from small to large lenders.

As America's mortgage markets began unraveling this year, economists seeking explanations pointed to "subprime" mortgages issued to low-income, minority and urban borrowers. But an analysis of more than 130 million home loans made over the past decade reveals that risky mortgages were made in nearly every corner of the nation, from small towns in the middle of nowhere to inner cities to affluent suburbs.

The analysis of loan data by The Wall Street Journal indicates that from 2004 to 2006, when home prices peaked in many parts of the country, more than 2,500 banks, thrifts, credit unions and mortgage companies made a combined $1.5 trillion in high-interest-rate loans. Most subprime loans, which are extended to borrowers with sketchy credit or stretched finances, fall into this basket.

High-rate mortgages accounted for 29% of the total number of home loans originated last year, up from 16% in 2004. About 10.3 million high-rate loans were made in the past three years, out of a total of 43.6 million mortgages. High-rate lending jumped by an even larger percentage in 68 metropolitan areas, from Lewiston, Maine, to Ocala, Fla., to Tacoma, Wash.

To examine the surge in subprime lending, the Journal analyzed more than 250 million records on mortgage applications and originations filed by lenders under the federal Home Mortgage Disclosure Act. Subprime mortgages were initially aimed at lower-income consumers with spotty credit. But the data contradict the conventional wisdom that subprime borrowers are overwhelmingly low-income residents of inner cities. Although the concentration of high-rate loans is higher in poorer communities, the numbers show that high-rate lending also rose sharply in middle-class and wealthier communities.

Banks and other mortgage lenders have long charged higher rates to borrowers considered high-risk, either because of their credit histories or their small down payments. As home prices accelerated across the country over the past decade, more affluent families turned to high-rate loans to buy expensive homes they could not have qualified for under conventional lending standards. High-rate loans are those that carry interest rates of three percentage points or more over U.S. Treasurys of comparable durations.

The Journal's findings reveal that the subprime aftermath is hurting a far broader array of Americans than many realize, cutting across differences in income, race and geography. From investors hoping to strike it rich by speculating on condominiums to the working poor chasing the homeownership dream, subprime loans burrowed into the heart of the American financial system -- and now are bringing deepening woe.

The data also show that some of the worst excesses of the subprime binge continued well into 2006, suggesting that the pain could last through next year and beyond, especially if housing prices remain sluggish. Some borrowers may not run into trouble for years....

The data suggest that financial suffering is likely to persist in many parts of the U.S. where subprime lending had surged. Many loans at risk of going bad have not yet done so. As much as $600 billion of adjustable-rate subprime loans, for example, are due to adjust to higher rates by the end of 2008, which means that more and more borrowers are likely to fall behind....

Seven of the 10 large metro areas now struggling with the highest foreclosure rates -- including Miami, Detroit and Las Vegas -- saw borrowers barrel into high-rate loans much faster than the country as a whole....

There are some less gloomy signs, too. Last year, the number of new high-rate loans fell 2% to about four million, after jumping 88% in 2005. That reflects the collapse of some of the most aggressive lenders and tightening credit standards of others. Slowing home sales have put the brakes on loan demand, and borrowers have grown more wary of mortgages with teaser rates and other gimmicks....

Higher-income home buyers began using such loans for larger purchases. Among borrowers characterized in the data as white with annual income of at least $300,000, the number of high-rate loans jumped 74% last year, the numbers show. The average high-rate loan grew 10% to $158,000 last year, compared with a 1% rise in the average size of all home loans. The 2006 data include records from 8,886 lenders nationwide, which generate an estimated 80% of U.S. home mortgages....

Lenders also extended more "second-lien" mortgages -- many of them "piggyback" second loans that borrowers used to cover down payments. Such second-lien loans climbed to 22% of all mortgages last year, up from 12% in 2004. Piggybacks are considered far more likely to default than a standard mortgage....

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Joe Huber!

An interview with Joe Huber in today's C-J...

I mentioned Joe in my last posting on corn, farming, mazes and so on...

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sub-prime mortgages IV: policy possibilities going forward...

From Nick Timiraos of the Wall Street Journal…

Lawmakers face a difficult balancing act between protecting vulnerable homeowners and ensuring that individuals bear responsibility for taking mortgages that they couldn't afford. Some borrowers have defaulted on mortgages even before those loans reset to higher rates, while other foreclosures have hit speculators who bought properties primarily as investments.

To stem foreclosures, the White House has turned to the Federal Housing Administration, which doesn't originate loans but guarantees the loans of higher-risk borrowers against default. President Bush loosened some rules last month that could help 80,000 borrowers refinance mortgages next year. The House and a Senate committee approved legislation this past week that would further ease FHA underwriting standards.

Democrats want to allow Fannie Mae and Freddie Mac, the two government-sponsored mortgage brokers, to purchase mortgages above their current $417,000 loan limit. Demand for securities backed by larger, or jumbo, mortgages has dried up on Wall Street and that credit crunch risks placing further strain on the housing market in large U.S. cities. Federal regulators set those limits last year after the lenders disclosed accounting misstatements of $11.3 billion. The White House has opposed increasing loan limits until accounting overhauls are in place.

Uhh...Why is the federal government in the business of purchasing individual mortgages?!


From the WSJ’s op-ed page (September 22-23), it looks like politicians may try to ignore the disincentives and inequities of a bail-out...

This week the House of Representatives overwhelmingly approved a plan to erase billions of dollars of subprime loan defaults in the private mortgage industry. How? By making taxpayers responsible for future losses.

The Bush Administration recently announced support for a similar plan, and the housing industry is in full lobbying mode. One of the lone skeptics is Alabama Senator Richard Shelby, who warns that this could be one of the most expensive federal bailouts since the savings and loan crisis of the late 1980s. He's on to something….

No one wants to see borrowers lose their homes, and the good news is that private lenders are already working with late-payment borrowers to refinance the terms of these subprime loans. What's troubling about the FHA expansion plan is that the insurance guarantee places taxpayers atop the housing bubble….If housing prices keep falling, home owners would have a financial incentive to walk away from the loan and leave it to taxpayers to pay off the balance.


And finally, some soft-hearted and soft-headed counsel to pursue “tenderness” in this arena—from Tom Teepen (published as an op-ed in the C-J):

From the way President Bush's comments on the mortgage meltdown were pitched in advance, you would have thought his compassion had finally caught up with his conservatism…

Choose your own response to Tom's opening blast:
a.) HAHAHA! Stop it, Tom...your making me laugh milk through my nose!
b.) What a tender and compassionate thing for Tom to say.
c.) Mortgage meltdown? Is the entire housing sector falling apart?
d.) How compassionate is it to make money from people who are being responsible with their mortgages to subsidize those who are not?

[But] Bush did not...come to the rescue of the literally millions who may be within months of seeing their homes snatched away by jacked-up payments. Instead, the administration would make maybe 80,000 additional people eligible for FHA-backed loans and will ask Congress for legislation to make it easier for some shaky homeowners to renegotiate with their mortgage holders…Notice, please, how tardily, tentatively and minimally officialdom has come to the plight of workaday folks who are headed for dispossession.

In his much-awaited utterance on this mess, Bush scolded, "It is not the government's job to bail out speculators or those who made the decision to buy a home they could never afford."
Bill Clinton could feel your pain at 100 yards. Bush, too. The difference being this president thinks you had it coming…Sometimes a little humanity can be good business.

I hate to end these foour postings on such a lame note. But we must avoid the "analysis" of those like Teepen-- and wrestle with the policy earnestly as the WSJ does above.

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sub-prime mortgages III: the racial angle

And then, there’s the racial angle…

Thomas DiLorenzo at LewRockwell.com points to the blame that the federal government must shoulder in trying to manipulate the market along racial lines…

The thousands of mortgage defaults and foreclosures in the "subprime" housing market (i.e., mortgage holders with poor credit ratings) is the direct result of thirty years of government policy that has forced banks to make bad loans to un-creditworthy borrowers. The policy in question is the 1977 Community Reinvestment Act (CRA), which compels banks to make loans to low-income borrowers and in what the supporters of the Act call "communities of color" that they might not otherwise make based on purely economic criteria…

Banks have been placed in a Catch 22 situation by the CRA: If they comply, they know they will have to suffer from more loan defaults. If they don’t comply, they face financial penalties and, worse yet, their business plans for mergers, branch expansions, etc. can be blocked by CRA protesters, which can cost a large corporation like Bank of America billions of dollars. Like most businesses, they have largely buckled under and have surrendered to their bureaucratic masters.

Consequently, banks in every community in America have been forced to hold a portfolio of bad loans, euphemistically referred to as "subprime" loans. In order to compensate themselves for the added risk of extending these loans, many lenders have increased the lending fees associated with mortgage loans. This is simply an indirect way of doing what banks always do – and what they must do to remain solvent: charging effectively higher rates of interest on riskier loans.


from Bob Tedeschi with the New York Times (reproduced in the C-J)…

A lawsuit brought by the National Association for the Advancement of Colored People accuses 11 major mortgage lenders of singling out African-Americans for costly subprime loans…Since then, Ms. Ciccolo and Mr. Tighe said, three separate offices set up to field lending discrimination complaints have continued to receive “a significant number” of calls from African-Americans who said they had been given high-cost loans when they could have qualified for prime mortgages at lower rates.…many of those who held such mortgages were not aware that they could have taken out far less costly ones.

Does this open the door for people to go back on previous purchases-- when they could have found a lower price?! What is the responsibility of the seller in informing the consumer about their options?

The suit, filed in Federal District Court in Los Angeles, cites studies from three different organizations suggesting that blacks received high-cost subprime loans at least 30 percent more frequently than whites with similar qualifications. It contends that lenders, in doing so, “engaged in institutionalized, systematic racism,” in violation of the Equal Credit Opportunity Act, the Fair Housing Act and the Civil Rights Act…

"With similar qualifications"...that sounds nice, but to be something beyond conjecture and anecdote, it must be based on rigorous statistical analysis-- a rare thing. It also flies in the face of assumptions about greedy businesses. If they want to make so much money, why don't lenders jump in there and provide competitive services/prices to this niche in the market? Either they're not so interested in money or they're morons. It takes too much faith for me to believe either of those...

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sub-prime mortgages II: the moral/ethical angle (from a Christian perspective)

From Joel Belz at World on subprime mortgages as "sin"...

To say that the recent troubles of the U.S. market in home mortgages are the result of human sinfulness will strike some folks as overly moralistic, accusatory, and judgmental. But it is the case—on at least two fronts.

We're uncomfortable, of course, calling these things "sin."…But subprime mortgages, by definition, are loans written on behalf of borrowers who really can't afford them. That means that at least two forms of sin are occurring: First, someone is coveting a house that he shouldn't yet be thinking about buying; it's beyond his means. Second, someone who should be looking out for the weakness of his neighbor (the customer), and helping protect him against that weakness, is instead sucking him right into destructive behavior.

The first person is trifling with the Tenth Commandment. The second person is trifling with the whole Second Table of the Law—the commandments that Jesus summarized as teaching us to love our neighbor as much as we love ourselves.

And then broadening the application to society as a whole...

But before we start feeling too judgmental and superior toward the first sinner, the one trifling with the Tenth Commandment, we need to remember how much a picture of our whole society that person has become. We are a nation of coveters. We spend our whole lives trying to figure out how to have what God has not yet given us…

There are laws that hold such bartenders accountable. Right now, the main laws holding lending institutions accountable are the laws of the market, and they've exacted some pretty severe penalties in recent weeks as reminders that you can't play games with financial realities.

And oh, yes. There are also God's laws. Godliness, with contentment, is great gain. And even in your business dealings, treat your neighbor the way you want him to treat you. Anything less is subprime.


From Chuck Colson in his September 10th Break-Point on morality and markets (hat tip: Linda Christiansen):

More regulation may be necessary, but what's at the root of the current crisis is imprudence—on the part of borrowers and lenders—a sad reminder that in financial matters, like all the rest of life, there's no substitute for virtue.

The sub-prime market is for people who cannot qualify for conventional mortgages, many because of their credit histories, others because they want to borrow more than they can truly afford. So why would mortgage lenders make such risky loans?

Well, some years back, Wall Street came up with a clever way to increase profits. They could buy mortgages from banks, package them into what are called mortgage-based securities, and sell them to clients….

Once again we see worldviews really do matter. The worldview that says live for the moment, get whatever you can, always leads to disaster. The Christian worldview, on the other hand, teaches behaving responsibly, living within your means, and deferring gratification—all of which are requirements for sustaining personal prosperity and the free-market system.

Economist Michael Novak said it best: Free, democratic capitalism is like a three-legged stool, supported by economic freedom, political freedom, and moral restraint. Today's sub-prime mortgage crisis, which could threaten the American economy, shows what happens when you forget that third leg of the stool—moral restraint.

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