There is quite a bit of blame going on concerning the so-called subprime loan crisis. Depending on who you speak with, it’s either the predatory lenders that took advantage of people, or it was the people who signed the contract that clearly stated they were buying into an adjustable rate mortgage, but just didn’t care.
The homeowners in “crisis” were gambling. Since their home value went from $100k to $150k, they spent the extra $50k in equity towards boats, motorcycles and a truck to tow everything around. Since home value are no longer increasing – and in some cases decreasing – everyone seems suprised and shocked that their adjustable rate mortgage rates adjusted; higher.
You can’t legislate stupidity out of people, but we must look at how the federal government and a new generation of activists planted the seed for the problems in 1977, through efforts to force lending institutions into providing high-risk loans.
Townhall columnist Jerry Bowyer has more…
… there simply was no such thing as a developed Subprime mortgage industry until the US congress created it by ordering banks to issue loans to people who were not credit worthy. …
Eventually, under Clinton, the [Community Reinvestment Act] CRA was renewed and, not surprisingly, made more punitive. Banks were required to make Subprime mortgage loans now too, or else suffer a low CRA rating and be punished accordingly. The Fed played it’s part. The Home Mortgage Disclosure rules created an unfunded mandate for banks to track and publicly disclose the race and gender of it’s mortgage clients. Now the shakedown artists had an easy source of complaints and a club with which to beat the banks into submission. The bankers complied and the Subprime mortgagage market was born.
Bowyer’s piece is another great economics lesson, and what should concern us all is that the institution that created the crisis in the first place is being touted as the institution that needs to step in, and regulate more, to solve the problem.