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Posted: 7/16/2008 4:26:30 PM EDT
I keep hearing that the drop in housing values and the shakiness of some sectors of the mortgage industry are due to "predatory lending," sometimes more gently described as "subprime mortgages" or "extension of credit to consumers without full verification of ability to repay."

I seem to recall that not many years ago Socialist Congressmen, some sectors of the federal executive, and the usual suspects from the perpetual grievance community loudly threatened to regulate and/or sue the mortgage industry into paralysis over the practice of (a) writing mortgages only on property likely to retain its value for the life of the mortgage and (b) only to people who could prove that they had the ability to repay the loans. The position of the bellyachers was that lenders' failure to make high-risk loans must be racially motivated because restrictions (a) and (b) resulted in relatively lower rates of loan extensions to members of ethnic minorities and on property in minority-predominant neighborhoods.

The complaint, of course, was ridiculous. Corporations in the mortgage business have absolutely no reason to care what color a lender is, provided that his money is plentiful and green and the note is adequately secured. In fact, a refusal to make sound loans to competent borrowers would be a breach of a corporation's duties to its shareholders. The current complaint is likewise absurd. What possible motive could anyone have to deliberately make bad loans? Is it conceivable that the personal and individual humiliation of some number of financially marginal black people and rednecks somehow advances the interests of a corporate lender? Even if the mortgage is sold rather than held by the original lender, shaky borrowers or questionable security will result in a lower price at the time of sale.

I know that there are people on this board far better informed in these matters than am I - and people cleverer, even if similarly benighted.

So what say you? Was the alleged extension of questionable loans a result of short-sighted risk-taking, of race- or culture-based malice, or of a strategy to avoid ruinous regulation and litigation?
Link Posted: 7/16/2008 6:11:16 PM EDT
Bump. Surely someone can at least confirm or debunk my recollection of the concurrent timing of the regulation/litigation threat and the loosening of loan standards.
Link Posted: 7/16/2008 6:24:47 PM EDT
Sorry man, I have dial-up.
Link Posted: 7/20/2008 8:18:43 PM EDT
I thought it was good.
Link Posted: 7/20/2008 8:20:37 PM EDT
The current nightmare is caused by a combination of greed, stupidity and a government that assumed oversight of the lending industry but refused to actually oversee said industry for fear of interfering with the huge money changing hands and the taxes that such activity generate.
Link Posted: 7/20/2008 8:29:04 PM EDT
Stupid people buying houses they could not afford. Thats the short story.

The rest of it was people using their house as a "savings account" and refinancing over and over to draw the equity out.

I have little sympathy for either as I as a taxpayer will be spending some of my earnings bailing them out.
Link Posted: 7/20/2008 11:18:58 PM EDT

. What possible motive could anyone have to deliberately make bad loans?


Mortgage companies took advantage of relaxed regulations to get a whole new class of borrower into homes they couldn't pay back. Many of these businesses went out of business quickly, but many people involved got extremely rich in a very short time by obtaining mortgages for these buyers who were previously unable to buy a home.
Link Posted: 7/22/2008 4:14:17 PM EDT
Bump for more input from wiser folks than I, since related topics are now on Page 1.
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