The
Financial Crisis Inquiry Commission reviewed Pinto’s research extensively. But staffers could find no way to reconcile
his risk categorizations to actual loan performance. The
FCIC’s findings were soon echoed by the research of
David Min, then of the Center for American Progress.
Four years later, Zandi’s updated analysis confirms and validates the earlier assessments made by Min, and almost all FCIC commissioners.
As the one Pinto-skeptic in the room, Zandi proceeded to answer his own question,
“Where are the losses?”
As of year-end 2013, approximately $1 trillion in credit losses on pre-crisis loans had been realized. But the realized loss rate among different sectors varied considerably.
Best in class were Fannie and Freddie, with a realized loss rate of 3%. Then came depository institutions,
like banks, which had a
realized loss rate of 6%.
The strong outlier was private label mortgage securities, with a realized loss rate of 23%, seven times that of the GSEs.
These numbers are in line with Laurie Goodman’s 2010 projections, which showed a 24% overall loss rate on private 1st lien securities. And Zandi’s 2013 numbers are consistent with his year-end 2012 numbers, which showed private label losses as 51% of the grand total, and GSE losses as 14% of the nationwide total.
These lopsided disparities are confirmed over and over from data going back two decades. By any standard — delinquencies, defaults, loss severity — GSE mortgages perform exponentially better than the rest of the market, whereas private label mortgages perform exponentially worse. To state otherwise is to lie.
