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Statement of Mark M. Fleming, Ph.D., Chief Economist Corelogic, Inc. - 2010 Hearing

Statement of Mark M. Fleming, Ph.D., Chief Economist Corelogic, Inc. - 2010 Hearing

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Published by Esquire
Tesetimony before the Financial Crisis Inquiry Commission.
Tesetimony before the Financial Crisis Inquiry Commission.

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Published by: Esquire on Jan 31, 2011
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01/31/2011

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Statement of 
Mark M. Fleming, Ph.D.
Chief Economist
CoreLogic, Inc.Financial Crisis Inquiry Commission
Sacramento, California Field HearingSeptember 23, 2010
 
Statement of Dr. Mark M. FlemingCoreLogic, Inc.September 23, 2010
2
 
|
 
Introduction
 Chairman Angelides, Vice Chairman Thomas and members of the Commission,CoreLogic appreciates the opportunity to testify at today’s hearing regarding the causes and effects of thefinancial crisis on the greater Sacramento region.My name is Mark Fleming and I am Chief Economist of CoreLogic. CoreLogic (NYSE:CLGX) is a leading global provider of consumer, financial and property information, analytics andservices to business and government. We combine public, contributory and proprietary data to develop predictive and decision analytics and provide business services that bring dynamic insight to our customers in the mortgage-backed securities market, other private sector institutions and government.
1
 Our data sets cover all communities in the United States, but today we have been asked tofocus specifically on the Sacramento market. We are particularly honored to do so given that the original“CoreLogic” was founded in the Sacramento area in 1997 and today employs over 170 people here.Although we are now part of a larger organization that has assumed the CoreLogic name for a broader range of businesses, our ties to Sacramento remain an important part of who we are.At the Commission’s request, I, together with our other economists and analysts, havereviewed our proprietary databases -- including those reflecting real property values, real estatetransactions, mortgage loan characteristics and performance, liens, tax status, delinquency andforeclosure. In addition to CoreLogic data sources, Bureau of Labor Statistics (BLS) and MortgageBankers Association (MBA) data sources were also used. Sources are cited along with each figure.Unemployment and Construction trends are from the BLS. Mortgage origination and application trendsare from MBA. We analyzed the data with a view to providing insight into the following key questions:
1
 
CoreLogic’s
 
information
 
resources
 
include:
 
 
98.7
 
percent
 
of 
 
U.S.
 
residential
 
real
 
property
 
records;
 
 
80
 
percent
 
of 
 
mortgage
 
applications;
 
 
85
 
percent
 
of 
 
mortgage
 
loan
 
servicing
 
performance
 
information;
 
 
97
 
percent
 
of 
 
loan
level,
 
non
agency
 
mortgage
backed
 
securities;
 
 
Over
 
500
 
million
 
historical
 
[real
 
property
 
and
 
mortgage?]
 
transaction
 
records;
 
 
The
 
nation’s
 
largest
 
contributory
 
mortgage
 
fraud
 
database;
 
and
 
 
More
 
than
 
88
 
percent
 
of 
 
the
 
nation’s
 
property
 
parcels
 
digitally
 
mapped.
 
 
Statement of Dr. Mark M. FlemingCoreLogic, Inc.September 23, 2010
3
 
|
 
 
What are the mortgage demographics in Sacramento and the performance of thosemortgages throughout the financial crisis and economic downturn?
 
What are the sales transaction demographics and the influence of housing policy?
 
What drove the large price increases as well as the large price declines in Sacramento andthe resulting high levels of negative equity which will have implications for theSacramento market for a number of years to come?
 
What is the state of the economy in Sacramento, particularly the labor market because of its key role in providing mortgage homeowners the capacity to pay their mortgages?
The First Signs of Distress
At the beginning of the decade, low interest rates and policies intended to stimulatehomeownership allowed consumers more effectively to leverage their incomes to finance housing. House price levels responded to this increased leverage capability by increasing in search of the marketequilibrium. Furthermore, increasingly popular Alt-A and subprime loans often included lower down payments or were originated with simultaneous seconds that left little equity with the homeowner 
2
.Lower initial interest rates, payment options, negative amortization features, and low or no documentationfeatures were also more common than on prime conforming loans. These loan features, collectivelydescribed as “affordability features,” allowed borrowers to further leverage their income to financehousing. Affordability products and low interest rates gave borrowers the ability to further extend their  buying power and buy their first home or a bigger home as well as use home equity for non-housingconsumption. As a result, households increased their debt burdens, their susceptibility to payment shock,and their exposure to a declining house price environment. The “underwriting tightness,” the difference involume between mortgage applications relative to mortgage originations, is a good proxy for theavailability and liquidity of mortgage debt (figure 1). In addition to the large increase in applications andoriginations from 2000 to 2007 one can see the underwriting tightness rise dramatically due to therefinance boom of 2002 and 2003, as many borrowers sought refinancing but not all qualified. After the
2
 
There
 
are
 
no
 
clear
 
delineations
 
between
 
Alt
A,
 
subprime,
 
and
 
prime
 
in
 
terms
 
of 
 
credit
 
quality,
 
loan
 
to
 
value
 
ratio,
 
or
 
overall
 
loan
 
risk.
 
For
 
the
 
purpose
 
of 
 
this
 
analysis
 
Alt
A
 
and
 
subprime
 
is
 
determined
 
by
 
the
 
generally
 
accepted
 
levels
 
of 
 
documentation,
 
credit
 
quality,
 
and
 
the
 
self 
 
reported
 
characterization
 
of 
 
the
 
originating
 
lender.
 

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