<div style="margin: 12px 0px; font-family: arial; color: #333333; background: #ffffff; border: solid 4px #e5e5e5; width: 100%; clear: left;"><div class="CM_CTB_Content_Wrap" style="margin: 0px; padding: 0px;background-color: #ffffff;"><div style="border-bottom: solid 1px #dcdcdc; white-space: nowrap; margin-bottom: 8px; background-color: #eeeeee ;background-image: url(http://clipmarks.com/images/source-bg.gif); background-repeat: repeat-x; height: 24px; line-height: 24px; vertical-align: middle; padding-bottom: 4px; color: #666666; font-size: 10px;" ><a href="http://clipmarks.com/clip-to-blog/" title="see clips that are hot right now"><img src="http://content.clipmarks.com/blog_embed/2889beef-8456-4622-9f52-eeb2b115f6bf/4B52B701-F082-440B-A8A9-2A7376F87A71/" alt="" width="19" height="19" border="0" style="vertical-align: middle; margin: 0px 4px; display: inline; border: none; float:none;" /></a>clipped from <a title="http://www.tnr.com/blog/the-stash/maybe-securitizations-not-blame" href="http://www.tnr.com/blog/the-stash/maybe-securitizations-not-blame" style="font-size: 11px;">www.tnr.com</a></div><blockquote style="text-align: left; padding: 0px 8px; margin: 4px 0px 8px 0px; background: transparent; border: none;" cite="http://www.tnr.com/blog/the-stash/maybe-securitizations-not-blame"><P>Soon forthcoming in the <A href="http://ideas.repec.org/top/top.journals.simple.html" target="_blank">top-ranked</A> <EM>Quarterly Journal of Economics</EM> is a very well- received <A href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1093137" target="_blank">paper</A> by four economists with convincing evidence of what many believe was the primary cause of the subprime boom and bust: That securitization took away the incentive for lenders to properly vet borrowers.</p> <P>But there's some <A href="http://isites.harvard.edu/fs/docs/icb.topic604227.files/BubbKaufman_cutoffrule.pdf" target="_blank">new evidence</A> questioning the paper's findings. To understand the how and why, we have to get into the nitty-gritty of the empirics.</p> <P>If you plot FICO (i.e., credit) scores against the number of mortgages outstanding, you'll notice a peculiar pattern:</P></blockquote><div style="height: 2px; font-size: 2px; background: #dcdcdc; border-bottom: solid 1px #f5f5f5; margin: 2px 4px;"></div><blockquote style="text-align: left; padding: 0px 8px; margin: 4px 0px 8px 0px; background: transparent; border: none;" cite="http://www.tnr.com/blog/the-stash/maybe-securitizations-not-blame"><div align="center"><img src="http://content6.clipmarks.com/blog_cache/www.tnr.com/img/F3DB59F4-1666-414C-9CB4-BA26BEEE27FF" alt="" /></div></blockquote><div style="height: 2px; font-size: 2px; background: #dcdcdc; border-bottom: solid 1px #f5f5f5; margin: 2px 4px;"></div><blockquote style="text-align: left; padding: 0px 8px; margin: 4px 0px 8px 0px; background: transparent; border: none;" cite="http://www.tnr.com/blog/the-stash/maybe-securitizations-not-blame">In the 1990's, Fannie and Freddie released research showing that about 50% of defaults are associated with borrowers who have FICO scores below 620. That happens to be where the biggest jump in the graph above takes place, suggesting that the industry looks far more kindly on a borrower with a score of 621 than a borrower with a nearly identical score of 619.</blockquote></div><div style="margin: 0px 6px 6px 4px;"><table style="font-size: 11px;border-spacing: 0px;padding: 0px;" cellpadding="0" cellspacing="0" width="100%"><tr><td style="background:transparent;border-width:0px;padding:0px;">&nbsp;</td><td align="right" style="background:transparent;border-width:0px;padding:0px;width:107px" width="107"><a href="http://clipmarks.com/share/4B52B701-F082-440B-A8A9-2A7376F87A71/blog/" title="blog or email this clip"><img src="http://content7.clipmarks.com/images/c2b-foot.png" border="0" alt="blog it" width="107" height="17" style="border-width:0px;padding:0px;margin:0px;" /></a></td></tr></table></div></div>

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