“You are being foreclosed upon.” “I thought those were just warnings.”
By admin | April 25, 2007
The blame game for the fall in subprime loans could be longer than pointing a single digit. The list of people to blame could be longer than the number of remind you of a “6 Degrees of Kevin Bacon” game.
“Everyone has a share in the blame - lenders, borrowers, regulators, investors. There were a lot of mistakes, and everyone made them,” said Mark Zandi, the chief economist for Moody’s Economy.com, a consultancy in West Chester, Pa.
First to be blamed would be the federal government. Sure they issued warnings about risky long term loans but were unavailable when regulating the area of home finance. But which of the 9 departments that oversee the mortgage market would you like to cast the first stone.
Times were good, we were all having fun and as the housing market was growing everyone wanted to stick their hand in the cookie jar and get what was “theirs” so there was little regulating going on.
There was no limitation on non-bank lenders and mortgage brokers who account for over 80% of the subprime loans granted to individuals with less than perfect credit. Many of those subprime borrowers today are being foreclosed upon as they undertook loans that they could not afford.
All of these factors helped to contribute to a drop in homeownership, the largest drop in 18 years. Many borrowers with good credit are also beginning to default on loans as well thus causing the lenders to tighten up.
These non-bank lenders and mortgage brokers began issuing large numbers of risky and exotic adjustable-rate loans with low teaser rates, as well as so-called “liar loans,” which asked borrowers their income but rarely verified it.
Again, only warnings were issued.
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