1

	June 25, 2008

BOOKS

DOW JONES REPRINTS This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, use the Order Reprints tool at the bottom of any article or visit: www.djreprints.com. • See a sample reprint in PDF format. • Order a reprint of this article now. Business Bookshelf Money for Nothing By JAMES R. HAGERTY June 25, 2008; Page A13 Confessions of a Subprime Lender By Richard Bitner (Wiley, 186 pages, $19.95) Three years ago, I had lunch with several mortgage-bond traders and analysts at Bear Stearns. The investment bank, already a huge trader and underwriter of securities backed by mortgages, had recently begun making home loans to consumers via brokers. I wondered why my hosts were getting even deeper into what seemed like an increasingly risky business. After all, home prices couldn't keep soaring forever, and lending standards were growing more and more lax. Mortgage lenders were congratulating themselves for finding "innovative" ways to help people buy homes that, by traditional standards, they couldn't afford. The Bear Stearns people dismissed my questions with ill-concealed contempt. Their computer models told them that home prices wouldn't fall much and that few people would default on their loans, barring another Depression. About the same time, Richard Bitner, the co-owner of a small subprime mortgage bank in Dallas, was coming to a different conclusion. Mr. Bitner wasn't relying on mathematical formulas. He was dealing with actual subprime borrowers, including one named Johnny. As Mr. Bitner recounts in "Confessions of a Subprime Lender," Johnny worked at a gas station, and his wife, Patti, was a cashier. By living with a relative for three years, they had managed to save $5,000 for a down payment on a house. But their dismal credit scores showed that "paying bills had never been a priority for them." The mortgage payments would eat up more than half of their combined pretax income. Despite his misgivings, Mr. Bitner made the loan. Shortly after the couple moved into the house, Patti got sick and lost her job. They had no medical insurance and chose to pay their hospital bills rather than the mortgage. With a sick feeling in his gut, Mr. Bitner took the keys from Johnny and wrote off his losses on the loan. Within a few months, Mr. Bitner sold his stake in the mortgage company and began work on his memoir. The result is an unflattering portrait of an industry that claimed to be all about helping people like Johnny achieve the American Dream but was really about grabbing loan-origination fees and foisting the dud mortgages on investors. Yes, borrowers like Johnny made poor decisions and needed to learn their lesson. But so did the lenders, brokers, rating agencies, regulators and Wall Street financiers who all thought, or pretended, that Johnny was a good bet. To his credit, Mr. Bitner owns up to a fact that many lenders still haven't admitted: Just because Wall Street was willing to supply endless funding for crazy mortgages didn't mean that lenders were forced to make the loans. "We decided whether a borrower was a good credit risk and we funded the loans using our own money (before selling them to investors). No one else made that final decision," he writes. Not everyone in the business was corrupt, of course. But too many were. After giving a concise overview of how mortgage loans are made and sold, Mr. Bitner exposes some of the industry's dirty little secrets for making borrowers look more creditworthy than they are: - A large car payment keeps a couple from qualifying for a loan. But, in a fluke, car debt is recorded by only one credit bureau; the loan officer simply "drops that bureau from the borrower's credit report and the debt disappears." - If a borrower's credit score is too low, it can be manipulated. "A person with good credit is paid a fee for each account they let someone else use. The person with the challenged credit doesn't get access to the account, just the benefit of the performance history that comes with it." (A spokesman for Fair Isaac Corp., a provider of technology for credit scoring, says that a new formula, being adopted this year, will thwart such abuses.) - Does the borrower's bank statements show bounced checks? Never mind. Just give the underwriters copies of the first page from each month's statement, leaving out the grisly details. - Is the borrower's income too low? "Desktop publishing programs allow for near-perfect replication of pay stubs and W-2s." Mr. Bitner also offers proposals for reform. Among the better ones: - Require people who have regular salary income to document it with pay stubs and tax forms. Reserve "stated-income" loans – those that don't require proof – for self-employed people with fluctuating incomes. But they should qualify only if they have good credit scores and plenty of savings. - Require brokers to disclose from the start – to the borrower – how much compensation they will get from arranging a loan. That way there should be less incentive to push the types of loans that are more profitable for brokers but less favorable for borrowers. - Certify the expertise of loan originators – whether independent brokers or bank officers – with training standards akin to those required for certified public accountants. As for Bear Stearns, losses from mortgage investments and other risky trades sank the firm in March, prompting its eventual sale to J.P. Morgan Chase. More than 7,000 jobs vanished. The Bear mortgage mavens would have been better off listening to Mr. Bitner or Johnny three years ago than relying on their computer models. They had plenty of brainpower but fell short on common sense. I look forward to reading their confessions. Mr. Hagerty writes about residential real estate and mortgages for The Wall Street Journal. See all of today's editorials and op-eds, plus video commentary, on Opinion Journal1. And add your comments to the Opinion Journal forum2.   URL for this article: http://online.wsj.com/article/SB121435152605601613.html   Hyperlinks in this Article: (1) http://online.wsj.com/opinion (2) http://forums.wsj.com/viewtopic.php? t=3061

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	June 25, 2008

REVIEW & OUTLOOK

DOW JONES REPRINTS This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, use the Order Reprints tool at the bottom of any article or visit: www.djreprints.com. • See a sample reprint in PDF format. • Order a reprint of this article now. Mortgage VIPs June 25, 2008; Page A14 Do all Washington politicians get their loans directly from CEOs in the mortgage industry? Readers might be wondering after learning about Countrywide Financial and its VIP treatment for Senators Christopher Dodd (D., Conn.) and Kent Conrad (D., N.D.). CAN I GET A DEAL ON THAT?   • Congress and the Countrywide Scandal1 • Subprime VIP2 • Beltwaywide Financial3 • Neither Borrower Nor Lender Be4 • Ex-Friends of Barack5 • Friends of Barack6 On Monday, we published Mr. Conrad's letter7 clarifying that he called former Fannie Mae Chairman and CEO Jim Johnson for assistance in finding a mortgage. Mr. Conrad thought it important to note that he only asked Countrywide Financial CEO Angelo Mozilo for a loan after Mr. Johnson, who happened to be standing nearby, passed the phone to Mr. Mozilo. Mr. Conrad then recounted how he came to receive preferential treatment from the country's largest mortgage lender. The Senator evidently believes that his latest version of events, in which he gets a sweetheart mortgage from a CEO only after first contacting the former CEO of the largest wholesale purchaser of home mortgages, somehow makes his conduct appear more appropriate. Our readers who aren't pals with Mr. Johnson might have a more acute sense of Beltway favoritism. Meanwhile, Politico.com has contacted all 100 members8 to see how they received their mortgages, on what terms and from whom. Politico's Eamon Javers tells us that he has met with surprising resistance, with many Senate press secretaries claiming that such details are private. And in fact such details are private, due to a loophole in Congressional financial disclosure rules. Senators John Cornyn and Barbara Boxer have offered an amendment to the current housing bill to require such disclosure, and in the meantime most lawmakers are reluctantly sharing the details. Still, as we went to press, Mr. Javers reported that 15 members of the Senate were still refusing to tell the stories behind their mortgages. See all of today's editorials and op-eds, plus video commentary, on Opinion Journal9. And add your comments to the Opinion Journal forum10.

 

 

	June 25, 2008

DOW JONES REPRINTS This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, use the Order Reprints tool at the bottom of any article or visit: www.djreprints.com. • See a sample reprint in PDF format. • Order a reprint of this article now. Florida to Buy U.S. Sugar's Land To Aid Everglades By PAULO PRADA June 25, 2008; Page B1 The state of Florida, stepping up its efforts to restore the Everglades wetlands, offered to purchase 300 square miles of land now used for sugar-cane production for $1.75 billion from U.S. Sugar Corp., effectively moving to shut down the largest grower of the crop in the U.S. The Clewiston, Fla.-based company and the South Florida Water Management District on Tuesday signed a "statement of principles" that would allow U.S. Sugar, which has farmed the land since 1931, to continue growing cane and producing sugar for the next six years. If final terms are settled as expected in the coming months, the company would then turn over the land for conservation purposes at the end of that period. The state plans to pay $50 million in cash and finance the rest of the purchase's $1.7 billion through debt. Announced at a ceremony with Gov. Charlie Crist near an Everglades wildlife refuge, the plan foresees using the land to better connect Florida's Lake Okeechobee with the so-called River of Grass, the swampy natural waterway that carries overflow from the lake to its natural runoff in the ocean. Reuters Florida Gov. Crist signs an agreement in principal with Robert Buker of U.S. Sugar and Shannon Estenoz of the South Florida Water Management District at an event in the Loxahatchee National Wildlife Refuge. In a statement, Gov. Crist said the land would provide a "critical missing link in our restoration activities." The offer from the state came as a surprise to U.S. Sugar, which accounts for about 9% of the raw sugar produced in the U.S. and farms about 30% of the cane fields and overall cropland in production in the Everglades, according to company and government data. U.S. Sugar's closure isn't expected to have a significant impact on the domestic sugar market. Squeezed by low-cost imports from Brazil and other foreign producers, U.S. growers of sugar control an ever-smaller share of the global market. Most of the raw sugar used in the U.S. comes from Latin America and other sources abroad, and the six-year period before U.S. Sugar's shutdown would give the market plenty of time to adjust for its closure, analysts said. "It's a very small amount of a commodity that is not that expensive to begin with," said Sterling Smith, vice president of FuturesOne, a commodities broker in Chicago. The private company -- owned by descendents of its founder, Charles Stewart Mott, and an employee-ownership plan -- had invested more than $500 million in recent years to upgrade its facilities on the land and had no intention of shutting down until Gov. Crist, in meetings with executives in recent months, "suggested he buy us out," said Robert Coker, senior vice president of U.S. Sugar. The terms of the state's offer, he added, were compelling enough for U.S. Sugar's board of directors to authorize moving ahead with the plan, even if it meant the end of the company. Until the six-year period ends, Mr. Coker added, U.S. Sugar will continue to grow and produce sugar and will provide an incentive plan to retain employees. It currently has 1,700 employees. "It will be business as usual...but then we'll hand over the keys," he said. The Everglades Restoration Act, approved by the Clinton administration in 2000, was hailed as a landmark plan for a decades-long effort to restore much of the Florida wetland that had been built over or drained over a century to make way for housing and farmland. But conservationists have been frustrated by a lack of implementation of the act. Coupled with increased funding for Everglades restoration from Congress, the agreement with U.S. Sugar "is an enormous step," said Sara Fain, co-chair of the Everglades Coalition, a group of environmental organizations that works to protect the wetlands. "One of the key pieces for restoration is land for water storage and this land could be a lynchpin." Write to Paulo Prada at paulo.prada@wsj.com1

 

	June 25, 2008

DOW JONES REPRINTS This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, use the Order Reprints tool at the bottom of any article or visit: www.djreprints.com. • See a sample reprint in PDF format. • Order a reprint of this article now. Hedge Funds Fear Backlash From Congress By DOUG CAMERON June 25, 2008; Page B5C U.S. hedge funds are concerned about a post-election backlash from Congress against speculative trading strategies if prices of oil and other commodities are pushed higher during the winter. The Managed Funds Association, or MFA, the industry's main lobby group, said it would take a more "aggressive" stance to defuse bipartisan efforts in Congress to curb speculative trading, which some blame for much of the boom in commodity prices. The impact of market speculators and long-only index funds on commodity prices has been the subject of multiple congressional hearings. Richard Baker, the MFA's president and chief executive, said efforts to curb speculation through new regulations were unlikely to succeed in the current Congress because of time pressures. "They are not going to enact anything significant bar a study resolution," said Mr. Baker, a former Louisiana Republican who chaired the House capital markets subcommittee. However, he warned that a combination of factors could reignite the pressure for regulatory action. These included an active hurricane season in the Gulf of Mexico; any move in gas prices toward $5 a gallon; higher heating-oil costs during a cold winter; as well as a new president and Congress. "By March of next year we could have political circumstances that are very, very different," Mr. Baker told reporters at the MFA's annual gathering in Chicago. Mr. Baker said the association and its allies in the financial-services sector planned to intensify efforts to educate Congress and regulators that speculation was essential for supporting efficient market function. "Otherwise the calls for inappropriate action could be uncomfortable," he said. "This is a next February or March issue, which gives us time."

 

	June 25, 2008

DOW JONES REPRINTS This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, use the Order Reprints tool at the bottom of any article or visit: www.djreprints.com. • See a sample reprint in PDF format. • Order a reprint of this article now. Ranks of Rich March From West to East Millionaire Population Grew Much Faster In Emerging Markets Than in U.S. in '07 By ROBERT FRANK June 25, 2008; Page C1 The U.S. is losing its market share of global millionaires. The population of millionaires grew five times as fast in emerging markets as it did in the U.S. last year, according to a survey released Tuesday. That was the largest divergence between the U.S. and the big emerging markets since the comparisons were first published in 2003. 1 The number of millionaires in Brazil, Russia, India and China jumped 19% in 2007, compared with growth of 3.7% in the U.S., its slowest growth since 2002, according to the World Wealth Report, produced by Merrill Lynch & Co. and Capgemini. The U.S. still dominates the millionaire economy world-wide. It has more than three million financial millionaires, defined as those with investable assets of $1 million or more. That's up 100,000 from 2006. Yet emerging markets captured the bulk of the millionaire growth last year, with Brazil, China, India and Russia adding 133,000 new millionaires, for an 817,000 total. India's millionaire population grew 23% last year, the fastest in the world. After climbing for years, America's market share of the world's millionaires declined slightly, to 30% in 2007 from 31% in 2006. Its share of millionaire wealth fell to 29% in 2007 from 31% in 2006, and is expected to fall further in the next five years, according to the report. Europe's market share of millionaires has fallen even faster in recent years, to 31% in 2007 from 36% in 2002. Meanwhile, the millionaire market share for India, Brazil, Russia and China has increased to 8% from 6% in the past five years. The numbers point to an economic reality: Tomorrow's rich are more likely to come from the East than the West. The surge in oil and commodity prices, the shift in financial flows to faster-growing emerging markets, the higher savings rates abroad and the decline in the dollar have all fueled a boom in new millionaires and billionaires in countries once known for their extreme poverty. At the same time, America's wealth-creation machine is sputtering because of the financial crisis, debt crunch and decline in real-estate prices. Impact on Economies While the market share of millionaires may seem trivial, it has ramifications for the global economy. The increasingly Eastern face of wealth could reshape investment and spending in the U.S., as well as philanthropy and entrepreneurship. The more than $40 trillion held by the world's millionaires will move increasingly outside the U.S., since the new millionaires prefer to invest in their own countries. Investments by the world's millionaires in North America are expected to decline to 39% of all investments in 2009 from 42% in 2007, the report said. The shift is also likely to accelerate economic inequality world-wide, since the fastest growth in millionaires and billionaires is occurring in countries with an even larger gap between rich and poor than in the U.S. According to the World Wealth Report, wealth is becoming concentrated increasingly among the rich -- especially the superrich. The population of the superrich, or those with $30 million or more in investable assets, increased 8.8% last year globally, while their fortunes grew by a disproportionate 14.5%. Indians already hold four of the top eight slots on the Forbes billionaire list, while Mexico's Carlos Slim has surpassed Bill Gates to claim the No. 2 spot. Warren Buffett is No. 1; Mr. Gates is No. 3. India's Wealth India was the biggest overall winner last year. Its population of millionaires surged by 23%, up slightly from a 21% rise in 2006. China saw growth of 21%, followed by Brazil with 19% and Russia with 14%. The main drivers for wealth creation are gross-domestic-product growth, financial-market performance and liquidity. The flood of money pouring into overseas stock markets has created a boom in initial public offerings and stock that can be used for mergers. That has fueled a rise in what private bankers call "liquidity events," where a company owner or executive can cash in his holdings to become a millionaire or billionaire. "Financial markets are deepening in these countries, and that is allowing many entrepreneurs to capitalize their businesses," said Harvard economist Kenneth Rogoff. The wealth shift is also redrawing the competitive map for the luxury economy and the vast array of companies that sell to the rich. Sotheby's estimates Russian buyers of Impressionist and Modern art at its February auction in London accounted for 15% of sales, compared with 9% in 2007. High on the Seas Mega-yacht makers, once devoted largely to the U.S. and Europe, are now doing a brisk business in Russia, India and Brazil. Burgess, the yacht-brokerage firm, said that emerging markets will probably account for half of its business in five years, compared with about a third today. "When it comes to the very big boats, India is the next Russia," says Jonathan Beckett, chief executive of Burgess. Gulfstream, the private-jet maker, is deriving an increasing share of its growth from outside the U.S. For the first time in the company's 49-year history, orders for jets from North American buyers in 2007 were eclipsed by overseas buyers, even though North American orders were up 30%, a spokesman said. In the first quarter of 2008, orders from overseas are outpacing North America by 56% to 44%. Many of the new buyers are "unaccustomed to waiting," says Robert Baugniet, spokesman for Gulfstream, a subsidiary of General Dynamics Corp. "When somebody hears the G550 they ordered won't be delivered until the first quarter of 2013, they rattle their briefcase full of cash and don't understand why they have to wait." Write to Robert Frank at robert.frank@wsj.com2

 

	June 25, 2008

DOW JONES REPRINTS This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, use the Order Reprints tool at the bottom of any article or visit: www.djreprints.com. • See a sample reprint in PDF format. • Order a reprint of this article now. Small Banks Face a Looming Hit From Builders' Interest-Reserve Loans By LINGLING WEI June 25, 2008; Page C1 Regulators are increasingly worried about a lending practice that allows real-estate developers to delay paying construction-loan interest but can mask problems at the banks that made the loans. Small banks, which are more exposed relative to bigger banks, have $280 billion of outstanding construction loans overall, mostly to condominium developers and home builders. When the loans were made, the banks calculated the interest that would be paid and put that money aside in "interest reserves." In essence, the banks pay themselves until the loan becomes due or the property generates cash flow. Ingo Fast Regulators fear this practice can be abused to keep recording loans as performing even though the underlying real-estate projects are failing. This month, the Federal Deposit Insurance Corp. alerted its bank supervisors to be on the lookout for banks that haven't come clean about potentially problem loans. "You don't want to have a false sense of security because the interest reserve is paying the loan," Steve Fritts, the FDIC's associate director for risk management and exam oversight, said in an interview. "You need to look to the credit fundamentals of the project." As an indication of regulators' concerns about construction lending, the FDIC in recent months has hit some banks -- including Towne Bank of Arizona, HomeTown Bank, of Villa Rica, Ga., and Integrity Bank, of Alpharetta, Ga., -- with cease-and-desist orders requiring, among other things, that they overhaul how they use interest reserves. Analysts have warned that some 150 small banks could fail in the next few years because of their big bets on construction loans. "Regulators want you to set aside money for credit losses at the moment you know there is a problem with the loan," said Donald Isken, a real-estate attorney at Morris, Nichols, Arsht & Tunnell LLP in Wilmington, Del. "They don't want you to stick your head in the sand and just wait for the problem to blow up." There are indications that potential interest-reserve problems aren't limited to a few banks. Matthew Anderson, a partner at research firm Foresight Analytics, said he has seen a surge in the number of banks that have a possible sign of trouble: They are hit with a sharp increase in loans that are expected to go bad after going for months without showing a high level of delinquencies. The issue is gaining attention because the housing slump means many of the projects funded by construction loans either will never be completed, or won't get sold or rented. That means banks likely will see a sudden jump in the number of dud construction loans as interest reserves deplete. A warning that interest reserves might have disguised loan problems can pop up when a bank shows a relatively low percentage of delinquent construction loans in one quarter followed by a big jump in nonaccruing loans the following quarter. While there can be other reasons for this shift, one possible explanation is that interest reserves kept delinquencies low. However, once the well ran dry, troubled projects were immediately moved to the nonaccrual category, said Mr. Anderson. One bank that fit this description, ANB Financial, of Bentonville, Ark., has failed, although not every bank that meets this pattern is in danger of going belly-up. Meridian Bank in Phoenix is among the banks where nonaccrual rates have outpaced delinquencies. Only 6.4% of Meridian Bank's construction loans were delinquent in the fourth quarter of 2007, but its nonaccruing loans jumped to 30% in this year's first quarter. That jump was among the largest of banks with a sizable proportion of construction loans, according to FDIC data on more than 8,000 banks analyzed by The Wall Street Journal. "What's been going on...is that interest reserves are running out before the projects are being delivered," said Doug Hile, chief executive of Meridian Bank. He said many troubled borrowers are asking for banks to add extra interest reserves to keep their loans current. "But we're not doing it," Mr. Hile said. "We don't view that as a sound banking practice." He said Meridian Bank, with $2.5 billion in total assets, is in no danger of failing because it is "very well capitalized." The biggest worry about interest reserves mainly has involved small banks because of their heavy concentration in construction lending. These loans normally ranged from $1 million to $10 million to home builders, land investors and developers of commercial properties such as shopping malls and office buildings. At the end of the first quarter, the $280 billion that small banks had outstanding in construction loans represented about 45% of all such loans, according to Foresight Analytics. More banks are starting to change how they use interest reserves. Integrity Bank has stopped using interest reserves on loans used only for purchasing land without immediate plans for construction and loans on projects that have been delayed or abandoned. David Edwards, who joined Integrity in December as chief credit officer as part of a management shake-up at the bank late last year, said: "There is nothing wrong with the use of interest reserves. It depends on whether the borrower has hard cash [put up front], and whether the project is active or not." Towne Bank, of Mesa, Ariz., has eliminated funding interest reserves. "Realistically, you never know whether a borrower can keep the loan current if you are the one who's making the payment," Patrick Patrick, who became chief executive of the bank in February. HomeTown Bank, also ordered to change interest-reserves practices early this year, now is part of SunTrust Banks Inc., of Atlanta. A spokesman declined to comment. --Jennifer S. Forsyth and Tom McGinty contributed to this article. Write to Lingling Wei at lingling.wei@dowjones.com1

WORK & FAMILY By SUE SHELLENBARGER

What the Dating Rules You Set
For Your Kids Say About You

Researchers have known for a while that closeness to parents is linked to less risky sexual behavior by teenagers.

Now, they're turning their microscopes on the dating rules parents set, with some surprising results: The limits you place on your teenager's dating may say more about your own love life than your teen's needs. Also, parents' satisfaction with their own life roles shapes the kind of rules they set.

¹ MAILBOX

 

Columnist Sue Shellenbarger answers readers' questions² about how to maintain intimacy in a commuter marriage and where men can find resources for short-term projects to do from home.

Parents who are involved in stable romantic relationships with spouses or partners tend more than other parents to set rules limiting teen dating behavior, such as curfews, minimum ages for dating, limits on places teens can go and explicit rules against sexual activity, says a new study of 169 parents and 102 teens by Stephanie Madsen, an associate professor of psychology at Maryland's McDaniel College. While the reason isn't clear, the author suggests these parents may hold more conservative beliefs in general; many of the rules involved sexuality.

Ironically, in what other researchers have called the "Romeo and Juliet" effect, such rules may tend to drive teenage lovers closer; teens of these parents reported closer, more positive relationships.

Parents who are unhappy, dissatisfied or insecure in love, however, go beyond limits and try to dictate or control how their teens treat their dates, the study found. These parents try to influence their kids to value certain things and act in specific ways. Parents would tell teens to open doors for dates, "act like a gentleman" (or a lady), or resist letting a date "walk all over" them. The goal may be to launch their teens on a romantic path happier than their own, Dr. Madsen says. But kids often regard this advice as intrusive, and again, it tended to have the opposite effect. The teens affected weren't particularly content with their dating relationships.

The research rings true to me. As a single working parent of two, my love life is near the bottom of my list of priorities. Like the parents in the study, I find myself prescribing behaviors to my teenage son, like "be a gentleman" -- advice he listens to respectfully. But, I suspect, he keeps his own counsel.

A better way for parents to expend their energy, Dr. Madsen says, is to emphasize constant, warm oversight over just setting rules. She calls this setting "supervisory" rules, or keeping up a free flow of communication without intruding too much. This means asking teens to disclose plans, check in by phone and inform parents when plans change. In such cases, the adults were focusing on their roles as parents rather than their own love lives. These parents also had the healthiest relationships with their children.

Debby Shulman and her husband, Allen, fall into this category. When their 16-year-old son dates, says the Northbrook, Ill., mother, "he can't leave one place without calling and letting me know where he's going." She knows his friends' parents and checks in with them now and then. "It's a great way to keep tabs on the kids without making them feel you're breathing down their necks." Dr. Madsen says supervisory parents also may arrange to meet their teen's dates and sometimes the date's parents.

Some 64% of parents in Dr. Madsen's study had dating rules for their 17-to-19-year-olds, the age of the teens in the study. The rest generally either had teens who weren't dating or gave their teens autonomy in dating. Marni Kan of the research group RTI International says many parents may be setting rules in response to research showing parental supervision and communication with teens protects against risky sexual behavior.

More recent studies have fine-tuned those findings by drawing a line between supervision and meddling: Parental oversight seems to have positive effects mainly when teens volunteer information about themselves -- suggesting a trusting, respectful relationship is the real foundation for the gains.

Write to Sue Shellenbarger at sue.shellenbarger@wsj.com³