“Firstly, it’s easy to vilify banks for “predatory lending” practices when they sold strange and exotic mortgages to homeowners, but I don’t think that’s fair. “Predatory lending” kind of makes sense when your interest rate is usuriously high, and the borrower has no other options, but it boggles the mind to use that phrase when the interest rate turns out to be too low. Let me put it another way — if a car dealer gives you absolutely cut price financing on a new car, are they “preying” on you in any way, or are you “preying” on their desire to make a sale?” –Winterspeak, on the current subprime loan issue
I agree. The consumers bear responsibility for not being able to refinance their morgages when the low interest rates return to normal.
Banks also deserve to suffer the consequences of their own poor decision making in giving these loans that are being defaulted.
The brokerage houses and hedge funds who now own worthless Mortgage backed securities also own responsibility.
In actuality of these 3 guilty parties, who do you think is least likely to get bailed out?
Agreed with everything but your last sentence…how exactly can you bail out anyone without bailing out the rest? Their futures are all tied together.
HP, thanks for the link to the Posner blog. Interesting stuff. Posner is a great writer. Interesting thoughts on whether the Fed should intervene.
“Predatory lending” to me implies “loanshark” attributes such as exhorbitant interest rates, unfair terms, etc. I don’t think that happened here in the subprime market. Call it “greed” or by whatever other name, but everyone (including the subprime homebuyer) in the transaction benefitted to some degree from these so-called “predatory lending” practices. Banks made money off the loans, loan officers/mortgage brokers made their easy commissions, and subprime borrowers bought homes that they knew, or should have known, they could not afford. Everybody was happy for a time.
However, all bills become due and must be paid eventually. The chickens are finally coming home to roost. Who will be left holding the bag is the question.
HP, thanks for the link to the Posner blog. Interesting stuff. Posner is a great writer. Interesting thoughts on whether the Fed should intervene at this point.
“Predatory lending” to me implies “loanshark” attributes such as exhorbitant interest rates, unfair terms, etc. I don’t think that happened here in the subprime market. Call it “greed” or by whatever other name, but everyone (including the subprime homebuyer) in the transaction benefitted to some degree from these so-called “predatory lending” practices. Banks made money off the loans, loan officers/mortgage brokers made their easy commissions, and subprime borrowers bought homes that they knew, or should have known, they could not afford. Everybody was happy for a time.
However, all bills become due and must be paid eventually. The chickens are finally coming home to roost. Who will be left holding the bag is the question.
When a buyer takes home an expensive car, or HD TV; and it’s repo’d, we generally do not view the buyer as a victim. It’s pretty obvious who was being unrealistic about the purchase.
Why do we now jump all over the “predatory” mortgage lender when the home is the subject of the repo?
Good points! All of you!
TacoSam, Glad you liked Posner…I highly recommend the blog in general - both Posner and Becker provide incisive commentary on hot topics of the day. Definitely a must read.
how exactly can you bail out anyone without bailing out the rest? Their futures are all tied together.
Not particluarly, you can forgive the debts of the banks restructure their debts basically throw money to bail out the banks and financial institutions, while still having the homeowners homes sold in foreclosures.
The banks will not get bailed out here. There might be some moron from congress that will try and push for bailing out homeowners, particularly those who are in the lower tier. This type of proposal will come from someone like Hillary. If this problem gets worse and thousands upon thousands start going into foreclosure, look for one of the Democratic candidates or perhaps more than one start pushing for a homeowner bailout plan that will include low interest government assistance with the possibility of extended payment terms like 40 year mortgages.