Saturday, December 15, 2007

Predatory Lending 2

A few days ago I commented that the government’s bailout of people who bought homes they could not afford by taking out mortgages on which they would not be able to make the payments was a bad idea. I said that I did not favor the government rewarding bad judgement and financial irresponsibility.

The response has been comments saying that Loan Company A was publishing memos to it’s salesmen saying that they should promote the high rate loans, and that Loan Company B is settling a lawsuit and making refunds because they illegally concealed in the documents that the payments would increase. The implication is that the bad loans are all the fault of these heinous companies that were out in the market place ripping off poor innocent victims.

To defend the government’s program with these arguments is like saying that there are some innocent people in jails in this country. That is a bad thing and the juries that wrongly convicted those people were, I don’t know, corrupt or maybe racist or something. Therefor we should open the doors of the prisons and let everybody go free. Everybody, innocent or not.

I did not suggest in my post that loan companies which violated the law should not be punished and their victims be made whole. What portion of the mortgage crisis does that constitute? I do not have the answer to that question, but I know for sure that it is not the entirety of it. I am reasonably sure that it is actually a fairly small portion.

As to the loan company advising its agents to “push” the high-interest loans, of course they do that. Just because someone is suggesting that I buy something does not mean that I have to do so. Before I commit myself to the payment of hundreds of thousands of dollars, fiscal responsibility demands that I do my own due diligence rather than simply signing whatever has been placed in front of me.

How many buyers were sitting at that loan officer’s desk, looking at the “non-conventional” loan because they had already been turned down by a conventional lender? This is another question to which I don’t have the answer, but reading news articles suggests to me that the portion is not exactly miniscule.

Who is the victim when one who cannot qualify for a legitimate loan turns to a “loan shark” instead? Certainly that does not legitimize the loan shark, but does it justify rescuing the borrower? Maybe if the loan was required to save a life, but…

How many borrowers knew full well that a safer loan was available to them but accepted the risky loan because it would “enhance their lifestyle” and thought they could refinance out of it before the risk caught up with them? Right, I don’t know the answer to that one either, but I know full well that it is a significant portion of this crisis. And the government’s plan rescues these borrowers in greater numbers than it does those who actually are victims.

Proponents of the government rescue plan point out that without it the flood of foreclosure will cause home values to fall and that will damage those who own homes. I own a home in Southern California, bought before the home values skyrocketed, and I cannot say that I really want to see it be devalued. Still, perhaps I am not as important as the well-being of the society in which I live. Perhaps the greater good of the greater number should prevail.

Do I really want to live in a society where only the very wealthy can own a home, even if I’m one of those who does?

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