Unscrupulous lenders fell prey to own greed
Thomas Sowell’s July 23 column defending banks in the current housing crisis claims that, in extending subprime loans to African Americans, banks were doing what the Community Reinvestment Act extolled them to do. Sowell wonders how greedy bankers can be blamed when they lost billions of dollars and asserts that “lenders are in the business of making money, and they don’t much care whose money it is, so long as they get paid.”
Yes, lenders are indeed “in the business of making money” but, at the onset of the housing bubble, lenders focused on the money that would be made when borrowers refinanced their mortgages as the balloon interest rates kicked in. So long as housing prices continued to rise, there was every reason to approve loans to buyers without even requiring proof of income.
When the housing bubble burst, the collecting-significant-fees-loan-rewriting scheme came to a crashing halt and the “so long as they get paid” part of the ruse failed.
For those facing foreclosure, those having lost their construction jobs, those finding it harder to borrow — and taxpayers who may have to finance bailouts — it is unfortunate that the cunning bankers were driven by greed rather than prudence.
Lawrence Morse
Greensboro
The writer is associate professor of economics, N.C. A&T State University.
Comments (8)
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"...it is unfortunate that the cunning bankers were driven by greed rather than prudence."
Sowell has it right. Greed certainly kicked in among many bankers who wrote so many bad loans. But unscrupulous lenders were only taking advantage of a situation into which they were forced/enticed by the federal government's fixation (beginning in the early nineties) with expanding minority home ownership:
"Diversity served as the perfect politically correct excuse for rampant irresponsibility. It gave insiders a rationale for putting their thumb on the scales of the vast lending market in the sacred name of anti-discrimination. Who dared be so racist as to argue that blacks and Hispanics should get fewer loans per capita because they were less likely to pay them back? That's "the soft bigotry of low expectations."*
Short account:
*The Housing Recession: Political Correctness Makes Lenders Stupid
By Steve Sailer
VDARE.com
July 21, 2008
http://www.vdare.com/sailer/080720_housing.htm
Detailed account:
The Diversity Recession, or How Affirmative Action Helped Cause the Housing Crisis
Taki Mag
Posted by Steve Sailer on June 22, 2008
http://www.takimag.com/site/article/the_diversity_recession_or_how_affirmative_action_helped_cause_the_housing/
Posted on July 29, 2008 7:10 AM
""Diversity served as the perfect politically correct excuse for rampant irresponsibility."
Victim this and victim that.
Posted on July 29, 2008 7:47 AM
Agreed some lenders were greedy but some borrowers were too. I still don't understand which part of "adjustable rate" the borrowers didn't understand.
Posted on July 29, 2008 8:45 AM
Dan, I think it was the "adjustable" part.
Posted on July 29, 2008 12:34 PM
Once again, the government created another crisis by trying to repair social problems with regulations. Were the lenders greedy? In some cases yes, but the problem extends to unrealistic expectations and a over inflated housing market by the buyers. Even so, some people are just unable to manage their finances. Case in point, the Florida couple who were given a free home on the Extreme Home Makeover show. Turns out that they cashed out their equity,$450,000, and are now in foreclosure. Another case shown in the news is a Las Vegas couple who purchased a $250,000 home, complete with swimming pool and all the amenities and lost everything when the husband lost his job as a middle manager in a casino. Maybe I'm ignorant, but a wife working part-time and a husband as a middle manager can not afford an adjustable $250,000 mortgage. No need to worry though, our Great and Magnanimous Uncle Sam will there to pick our pockets to bail these deadbeats out.
Posted on July 29, 2008 10:28 PM
T.B.
How do you propose to give a hand up to hard-working people, some of whom have had their homes for ten-fifteen years, but withhold assistance to the deadbeats? Or do you think we should forget about helping anyone, deserving or not?
It's a lot like welfare. There are those on welfare who are in need of help because they are mentally or physically unable to work. Then there are those who could work but won't, the deadbeats.
For me, it is better to help deadbeats than deny help to a woman whose husband ran off and left her with kids he will no longer support and she can't on the salary she makes. Or a man whose wife left and he can't afford to hire someone to keep the kids, buy groceries and pay all the other expenses on $10/hour.
Many people bought their homes in good faith, made payments in good faith, then had a drastic change in circumstances causing them to go into foreclosure. It seems you, along with the others who posted on this thread, are playing the "blame game" with no regard to individuals; all those who are in foreclosure are to blame for being greedy and/or stupid. You have painted with a very broad brush.
BTW Dan, not everyone in foreclosure had an adjustable rate mortgage so you can give that one a rest. It is not the single causative factor as you suggest.
As to the letter, I find it interesting that Mr. Morse only addresses the plight of black people and the housing market. It is my understanding the Community Reinvestment Act encouraged loans to minorities, not just blacks.
Posted on July 29, 2008 11:48 PM
The adjustable rate mortgage is a perfect illustration of the fact that not all "change" is good!
Posted on July 30, 2008 8:09 AM
The government isn't even 'bailing out' the 'deadbeats.'
The plan passed by Congress allows the government to insure up to $300 billion in renegotiated loans. The program is voluntary. The lenders can pick which loans they want to renegotiate. It seems to me that they'd pick the ones most capable of paying, which will most likely be the ones who were already paying but got screwed by the bursting housing bubble.
Posted on July 30, 2008 6:24 PM