The advocates for a bailout for subprime borrowers (you know, the ones who start with “For the children… “) claim that the subprime lenders have been providing access to home ownership for first-time buyers. Therefore, in the sacred name of increasing home ownership, a bailout should be provided.

The facts simply do not support this. Emory Rushton, chief national bank examiner for the Office of Comptroller of the Currency, in his testimony before the Finance Committee, pointed out that Mortgage Bank Association figures revealed only 11 percent of subprime loans went to first-time buyers last year. The Center For Responsible Lending (CRL) says the record going back to 1998 is even worse; only 9 percent of subprime loans went to first-time buyers in the nine years through 2006.

Who is getting these loans? Speculators, fraudsters and over-consumers. These folks don’t deserve a bailout.

Thanks to the Marin Real Estate Bubble blog, whose owner has in fact received a death threat, presumably from someone who feels that transparency in the property market is not in his interest. The chart is the best depiction I’ve seen that shows the sudden breakdown as the secondary market for sub-prime loans crumbled.

Robert Shiller’s index is based on tracking the prices of specific properties as they sell and resell. This gives a much better idea of what is really going on than the “median” or other statistically-distorted indices that the NAR favors. It is now diving into negative territory.

News came out after the close to the effect that Beazer Homes was being investigated for criminal fraud by the FBI in respect of its financing activities. I understand that Beazer was turning its loans over to Fannie and maybe more than a few of them have gone sour.

ShopperTrak for last week showed a 1.3% increase, breaking the string of declines. Of course, this is still a decrease in real terms.

The fundamental problem is that mortgage credit has been extended to people whose history shows that they do not take seriously the obligation to repay and/or pay interest on money that has been loaned to them, on a timely basis.

In many cases, these people have committed fraud to obtain mortgage credit, either by lying about their ability to repay or by having no intention of repaying the loan.

The lenders relied on the fact that the continued supply of credit was driving up the value of their collateral, so that they would be paid regardless of the bad faith or inability of the borrower.

Eventually, the supply of new housing exceeded the supply of credit. Prices came under pressure and lenders could no longer look to the appreciation of the collateral to bail them out. The rate of defaults rapidly became intolerable when recovery from collateral didn’t work anymore, and lenders have started dropping like flies.

Outstanding credit will now shrink as new loans are issued at a lower rate than defaults. The price of housing is already declining, and the declines will accelerate. We saw yesterday that builders are still starting new houses at a rate twice that of sales. Not a sustainable situation, they will have to dump their inventories at fire sale prices.

Property owners will no longer be able to continuously ramp up their borrowings based on appreciation. This will reduce their spending and consumption and the economy (as measured by GNP/GDP) will shrink. The only question is how deep the recession will be, and whether it will turn into depression.