Inside Financial Services

NEWS YOU WILL NOT HEAR FROM ELIZABETH WARREN

A new study finds that it wasn't subprime borrowers who were most victimized by the non-traditional mortgages (with, say, low downpayments or teasers) that

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A new study finds that it wasn’t subprime borrowers who were most victimized by the non-traditional mortgages (with, say, low downpayments or teasers) that were dangled by those cussed predatory lenders during the housing boom. Actually, it was the lenders who tended to be the victims:

The study finds that, compared to traditional home loans in which the balance is paid down steadily over time, complex mortgages were more often sought out by sophisticated homebuyers who wanted to stretch their budgets, some of whom made a calculated choice to walk away from their debts when home prices fell. Using detailed data on individual loans made between 2003 and 2007, the study’s authors show that, even within the same geographic area, borrowers who took out complex mortgages tended to have higher incomes than those who took out traditional mortgages. Such mortgages were also more common in areas with highly educated populations. And, most complex mortgage borrowers actually had prime credit scores. [Emph. added]

The report adds that borrowers would often buy the properties as an investment (without disclosing that fact to the lender, of course) in non-recourse states, so that their risk in the investment was basically zero. As soon as the house fell in value, the borrowers defaulted whether they were in financial distress or not. This was simply fraud-on a huge scale. And the banks are the ones getting blamed for it. Insane. . . .

One Response to “NEWS YOU WILL NOT HEAR FROM ELIZABETH WARREN”

  1. Geo

    Was it fraud or was it an investment gone bad which they were able to walk away from with no liability? Fraud assumes they knew the values would drop and they would default. Why would anyone do that. No, they assumed the values would increase and they would make money in the process. It wasn’t fraud, it was GREED! Let’s face it. If the lenders were dumb enough to make loans to people without regard for equity(no down payment) and ability to pay ( no income verification) then maybe they got what they deserved.

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