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Sub-prime Blame Game

For those who haven't been following the story, basically the past five to ten years have seen big changes in the mortgage lending market, and the widespread use of a number of "creative" mortgage plans such as interest-only or adjustable rate loans, which offer borrowers a very low introductory rate or payment, but have the risk of a significantly higher payment after a few years. These programs have allowed people to buy more house than they could afford, and other programs have also allowed people with less-than-good credit to get loans they wouldn't otherwise qualify for. Recently, delinquency and foreclosure rates on these loans have been skyrocketing, as declines in the housing market and increasing interest rates have left people unable to pay the rising mortgage payments.

CNNMoney has an article (Sub-prime Blame Game) pointing the finger at various groups, trying to describe whose fault it is. They blame mortgage brokers, appraisers, regulators, lenders, Wall Street, and real estate agents.

They left one very important group out.

Home-buyers who bought houses they could not afford and took loans they could not repay. Are they entirely to blame? As with the other groups, no. But these loans didn't have any "hidden" costs - right upfront, the loans describe what the rate is, how long the rate is valid, and what happens after the introductory term. Sure, some of them are complicated and a naive first time home-buyer might not understand everything, so these people are not 100% to blame for their current misfortune, but any attempt to point fingers at those responsible, which does not include a finger pointing at the people who took these risky loans, is just plain irresponsible.

But I guess we should be used to the idea of people trying to blame anyone and everyone but themselves. It's almost become the motto of this country. "It's not my fault!"


( 3 comments — Leave a comment )
Apr. 9th, 2007 08:32 pm (UTC)
it is the motto...
The school doesnt teach X and the school is responsable for educating, forming and daycareing for kids. for example.

I think a lot of people gambled to sell the house and make the fast cash. Some managed to, some didn`t. The ones who didn`t are in trouble now.
Some other people, got sideblinded by the introductory good deal.
Also, many lenders went soft on their selection process.

Apr. 9th, 2007 10:02 pm (UTC)
Certainly there are a lot of people who behaved unwisely. I've heard lots of people say that there were good reasons why banks offered the sub-prime loans that they did, and these lenders should not be castigated for doing what was a) good business sense at the time, and b) attempting to make the opportunity to invest in real estate available to a wider range of people.

But I've also heard reports of a lot of predatory lenders, who either deliberately concealed or actively lied about the risks and dangers of the loan (i.e., reassuring their borrowers it would be easy to refinance their loan after the two-year low-interest period). And now the people they lied to are defaulting. There's plenty of blame for these people. Fortunately, most of them are going bankrupt because of all the people defaulting on their loans. Lawls.

I think the biggest problem is that people aren't educated about this kind of thing and they have no idea how to GET educated -- or even that there's a NEED to be educated about the various kinds of loans, etc. And they're naive and trusting enough to think that the lending agency is going to be a reliable source of information about their own products.

Yes, there's blame to be had for the consumer. But it seems that the punishment of losing your home and savings and having your credit obliterated might be a TAD bit harsh for the mistake, no?
Apr. 10th, 2007 03:38 am (UTC)
You're absolutely right, the consumers who are losing their homes and savings and credit are certainly being punished very harshly. I agree with you 100% on that.

For a CNNMoney article titled "The Blame Game", though, to leave out the consumer as one of the parties to blame is wrong.
( 3 comments — Leave a comment )


Galen Wolffit

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