Grim News for Subprime Borrowers

Sad. Why are these predatory lending practices legal? They drag the people who can least afford it into worse and worse debt.

One would think that the banks themselves would be too hesitant to lend to people with such a high chance of foreclosure: it doesn't do the banks any good if they go into foreclosure, right? (Subprime trader, care to explain it to us?)

But since the mortgage market won't self-regulate and step back from these kinds of risks, shouldn't there be some kind of legislation protecting the people at the bottom of the pile, the people with the highest chance of getting screwed by subprime loans?

Posted by: sylvia at December 20, 2006 3:05 PM

Ok, maybe I'm not understanding subprime loans. How do people "walk away" from their loans when they're being foreclosed on? Don't they lose their homes? Isn't that what a foreclosure is?

I'm not being argumentative here, I really just want to understand why people at the bottom of the pile are getting foreclosed on at such high rates. Maybe it's just capitalism, maybe that's just the way things are, but that's true for a lot of things, and we still have systems in place to make sure that the people at the bottom of the pile don't get trampled on - or maybe trampled on, but not steamrolled - just because they're on the bottom of the pile.

Posted by: sylvia at December 20, 2006 5:34 PM

Ok, so I did understand that right. It seems like it depends which side you're looking at it from. If you're looking at it from a purely financial, zero-sum perspective, then yes, the bank loses out when the homeowner is foreclosed on and the owner's loss of a downpayment and any payments they've made to date is "negligeable".

If you're looking at it from the homeowner's perspective, not only have they lost what little life savings they had, they've also lost their home and any future chance of owning a home, thanks to their (now even more) abysmal credit rating. (I completely disagree, by the way, with the statement that because the home in question had no equity, the homeowner never really owned the home anyhow. That's just not true from any perspective, and certainly not true from a legal or personal perspective.)

I understand that in our current economic system, we're supposed to consider entities (banks, corporations, etc) as having economic interests that can be weighed against the interests of an individual and found to be more important. Corporations have "rights", in other words: in most cases, the "right" to make a buck. It's what drives our economic system and keeps us all, indirectly, fed and clothed.

But we all know what happens when those entities are given free rein. We have laws that are meant to protect us from these entities' excesses, and with good reason. Some of these laws are meant to protect people from discrimination (just because you're a minority, or poor, or live in a certain neighborhood doesn't mean you shouldn't have access to economic resources like mortgages), and some of these laws are meant to protect us from being preyed upon (just because you're poor doesn't mean the bank can lie to you about the terms of your mortgage, or use obfuscating language to avoid fully explaining the mortgage to you).

I don't know if this is one of those cases where the banks have been abusing their power or not fully disclosing the risks associated with these loans, but the end result is that a lot of people are losing their homes AND being economically steamrolled, and I would like to see, at very least, some kind of investigation into how much "disclosure" (a key, key term) has been practiced in these cases. Maybe something along the lines of the recent legislation requiring cell phone providers to use clear language when they bill you for their innumerable taxes and fees?

Posted by: sylvia at December 21, 2006 9:55 AM