I am back from an enjoyable trip to Morgantown, West Virginia, at the invitation of co-blogger Josh Hall. It was my first time to the city and university and it was very fun.

While wading through a few days worth of backlogged emails, I came across the U.S. Economic Briefing by Comerica Bank. This briefing spent considerable space discussing the subprime lending market and what is happening and is expected to happen in the next few months. The discussion contains this shocking paragraph:

In 2006, 38 percent of subprime originations were for 100 percent of the value of the home. To make matters worse, the appraisal process often allowed brokers to choose who will assess home values rather than having appraisers assigned randomly. Last year, so called “liar loans” that involve little or no documentation of the borrower’s financial condition reportedly accounted for as much as 45 percent of subprime originations. Many subprime mortgages had adjustable rate structures with low teaser rates that imply unrealistically high debt burdens unless the loan could be refinanced before the rate adjusts higher.
Subprime Delinquency

How can brokers choose who will asses home values? Now that's an interesting moral hazard problem.

more here