Quote:
Originally Posted by mikester
Should not the banks be protecting themselves by not offering folks who present a high risk of failure to repay loans with such favorable terms? In my opinion the banks are and lenders are also liable for their risky behavior.
In the end it is the folks who did not do something stupid who will likely end up paying...
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On the contrary, a lot of banks WERE protecting themselves by offering these kinds of loans. Banks, unlike mortgage companies, are subject to the Community Reinvestment Act (CRA), whereby they have to give FHA-backed loans at below market rates to first-time buyers who would not normally qualify for conventional mortgages. It became a race to the bottom. Gov't. loans were getting so competitive, that the private sector went a step further with subprime, almost pre-empting the gov't., which often comes after banks and mortgage companies for not giving enough loans to enough deadbeats and/or minorities (and I'm not at all implying the two are related). No bank wants to lose money. And when they can find investors who are willing to buy subprime loans, thereby spreading out the risk, why shouldn't they do so? It was very profitable for them. Suddenly, a lot of folks who never would have been able to get even an FHA loan, were able to get into houses.
I could go out today and get into a Ferrari at the local dealership. It would get repo'ed pretty quickly, but I could get into the car and get it home. Would the dealership be at fault for that?