The Bellows » More Housing, cont.

Over at The Bellows, Ryan Avent is still trying to pull apart local variations in the subprime problem:

Calculated Risk notes that Georgia’s problem loan rate is higher than Florida’s, despite the fact that Atlanta’s home price trajectory looked downright anemic during the boom. What’s with that?
One reason might be that Georgia led the nation in Interest Only loans. Another might be that lenders are able to foreclose quicker in Georgia..
Ok, but why so many interest-only loans? Given the (relatively) low prices in the state you might expect that fewer buyers would need or choose the IO option. But then, there doesn’t appear to be much correlation between prices and IO percentages across the nation. Looking at some of the nation’s more expensive markets, you see that the Bay Area has a huge IO problem, while the New York area is on the low end of the scale. Weird. I’d love to see an explanation of the underlying forces here.

My guess at the primary reason behind the difference is that mortgage brokers are regulated at the state level. States with laxer regulations (or as conservatives would have it, better regulatory capture) got more low-quality loans. This dovetails with the fact that many of the most problematic loans hit trouble even before their teaser rates reset, meaning that there was never any realistic possibility that the borrower would repay the money.