by Calculated Risk on 10/26/2007 05:23:00 PM

From PMI: David W. Berson Joins PMI as Chief Economist and Strategist (hat tip Lurker).

I wish Dr. Berson well at PMI, but I'm going to miss his publicly available economic analysis at Fannie Mae. Here is his final Fannie Mae piece: Twenty years of economic, housing, and mortgage market analysis.

Friday, October 26, 2007 marks my retirement from Fannie Mae after almost exactly 20 years (I started on Monday, November 2). Much has changed in the economy, housing, and mortgage finance markets over that time -- but there are many similarities as well. In that 1987 period, the stock market had crashed just two weeks before and analysts weren’t sure if the economy would head into a downturn (or worse) as a result (it didn’t). Today, we have the severe housing downturn and a broadening credit crisis. Will this be the precursor of a downturn? Most economists don’t think so, although we are skirting dangerously close to recession (not that the real GDP numbers show it) and economists are notorious for egregiously missing business cycle turning points (both up and down). The high odds of a downturn (even if not over 50 percent) suggest that households, businesses, and governments should start to make contingency plans for such an event. Another interesting similarity between that late-1980s period and today has been the rise of new, aggressive mortgage products. In the earlier period, we saw a rise of low-documentation lending -- starting out with loan-to-value ratios (LTVs) of less than 70 percent, but over time moving to LTVs of over 90 percent. Additionally, the investor share of purchase originations rose sharply. More recently we have had a plethora of low-doc, no-doc, investor, 2/28 subprime, even more investors, and option ARMs -- arguably more aggressive lending than in the late-1980s. Of course, in late 1987 the housing/mortgage market was still ramping-up with these new mortgage products. Today, we are suffering the downside of overexposure to them (making 2007 perhaps more similar to 1990, in that regard). Ultimately, the lending practices of the late 1980s resulted in an extended period of weakness in home sales, house prices, and mortgage market volumes. We may be in year two of a similar five-year downturn today. (Note that not all of these areas fell for five years in the earlier period, nor are they all likely to decline for five years this time -- but some of them may.)
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And now, in the immortal words of Porky Pig, “that’s all folks!”
emphasis added

Best wishes to David Berson! Thanks for all the great analysis.