"Why did so many lenders write variable rate notes when they knew borrowers would struggle to make higher payments down the road?"
The reply from the LO was that as risky as these credit bets were, if conventional higher fixed-interest rates were used, the borrower could not have qualified for as much of a loan. My reaction? Exactly.
I'm reading a book by Bethany McLean and Joe Nocera - All The Devils Are Here - The Hidden Story Of The Financial Crisis (Portfolio/Penguin). I'm learning more about the origin of sub-prime lending and the players behind it, but I'm struck by a rhetorical question the authors pose in Chapter Six, concerning the line between predatory lending and what I think of as predatory borrowing:
Yes. It matters. Attention to causality (i.e. fault) is important because sweeping loan policies are being hatched to curb systemic risks for the future. If they get it wrong, we'll over-regulate mortgage originators -- possibly choking off liquidity for qualified, low income borrowers. My biggest fear is that we'll fail to transfer liability from the American taxpayer to future borrowers-lenders-investors.
The reply from the LO was that as risky as these credit bets were, if conventional higher fixed-interest rates were used, the borrower could not have qualified for as much of a loan. My reaction? Exactly.
I'm reading a book by Bethany McLean and Joe Nocera - All The Devils Are Here - The Hidden Story Of The Financial Crisis (Portfolio/Penguin). I'm learning more about the origin of sub-prime lending and the players behind it, but I'm struck by a rhetorical question the authors pose in Chapter Six, concerning the line between predatory lending and what I think of as predatory borrowing:
"But in the larger scheme of things, did it really matter who was at fault?"
Yes. It matters. Attention to causality (i.e. fault) is important because sweeping loan policies are being hatched to curb systemic risks for the future. If they get it wrong, we'll over-regulate mortgage originators -- possibly choking off liquidity for qualified, low income borrowers. My biggest fear is that we'll fail to transfer liability from the American taxpayer to future borrowers-lenders-investors.
