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Subprime Mortgage Crisis

Borrowers and Lenders Both at Fault For Bad Loans

It's easy to blame borrowers for causing the subprime mortgage crisis and shake our fists at the buyers who bit off more than they could chew. But the lenders who issued these loans are just as much at fault for approving loans they knew weren't appropriate for their customers. If borrowers lied about their income for one reason or another it's really no excuse — all the lenders had to do to verify the incomes in question was contact the I.R.S. Because many lenders had their blinders on and were just focused on closing deals, borrowers were approved for loans they couldn't afford and now the Senate is trying to come up with a plan to help people whose homes have been foreclosed.

A report on mortgage fraud released last week by the Financial Crimes Enforcement Network showed that 43 percent of the cases sampled involved misrepresentation of income, and in 64 percent of these cases mortgage brokers initiated the loans. That doesn't mean the borrowers who were enabled by some lousy lenders aren't accountable for signing the dotted line, it just means that the blame game is one big circle and everyone in it is in trouble.


Join The Conversation
Dublin62505 Dublin62505 9 years
Rampant greed on the part of investors. And, the reality is most consumers are not educated about amortization much less negative amortization. I nearly hurled when I read the CEO of Bears & Stearns described the company as a "victim." They filled their coffers with enormous profits from funny money loans without any meaningful backing. And to think they once tauted themselves as a good risk manager. ROFLMAO! In my neighborhood here in FL alone(which has/is/will continue to be ravaged by the real estate meltdown), some speculator/fly-by-night investor purchased 4 homes. Now, he is unable to afford his mortgages on all 4 homes. HE HAS NEVER EVEN VISTED/SEEN the homes. He residents in another state. He bought them on spec.. He hasn't paid his homeowners dues and his investments are now being covered/cared for by the rest of the community. We pay extra to have his lawns managed and his yards mulched. There are liens against his home but it will be months before our community recoups its money. Unfortunately, he is just one of 40+ other homes in the same predicament. In my county alone there is a 36 month supply of homes. And, I live in a largely resort/retirement community. There is no industry in this town to support the overabundant homes.
UnDave35 UnDave35 9 years
What about Caveat Emptor? If it sounds too good to be true, it usually is, and this applies to loans as well as goods and services.
JaimeLeah526 JaimeLeah526 9 years
I'm with imLissy. People should not be biting off more than they can chew but brokers shouldn't be so worried about making money that they let others suffer for it. American's are really stupid!
angelfromlsu angelfromlsu 9 years
Thanks for making it so hard for me to get a house people! Me who graduated college and makes a nice amount of money with good credit and a downpayment. A cheap mortgage for what I earn.....thanks a lot. I was rejected 3 times last week :(
hmcmcd hmcmcd 9 years
I was just talking with a Realtor friend of mine about his situation. He was telling me that what has happened is that most people who took loans they could not afford, have just given the keys to the bank and said "it's yours take it". I was shocked by hearing this! I would at least rent the house out to someone who can afford it, or at the least take another job to cover the cost until things come down~ you can't just buy a house and then say "oops".
melizzle melizzle 9 years
UGH. Live within your means, people.
princessjaslew princessjaslew 9 years
i think a lot of this was driven by the American Dream. The problem is that when you build castles in the air, the wind will come and blow it away sooner or later.
tiff58 tiff58 9 years
Adjustable rates can work out- if you are educated on when to use them. I had an adjustable rate on my last home, and it was much lower than a fixed rate. I knew that there was a huge possibility that I would relocate with my company before the 5 years was up, and I did. Now I have a fixed even though I will probably relocate again in less than 5 years, because the adjustable rates are higher than the adjustable rates. Also, I just find it INSANE that people were able to lie about their income. It's crazy that anyone would lie about their income in the first place, but to have lenders not check something that is so simple to check is just completely negligent.
hotstuff hotstuff 9 years
This situation is far bigger than people just simply not being able to afford loans. In a lot of the cases they were point blank lied to about what their loans were. There are people who already OWNED their homes and were suckered into bad home equity loans and all kinds of mess. There was a lot of illegal practices going on by people who aren't even qualified to give loans or advice!
freegracefrom freegracefrom 9 years
Adjustable rate mortgages are the DEVIL. Borrowers are certainly just as much to blame, but so are the companies that welcomed people with bad credit or a high risk and suckered them into an adjustable rate mortgage. These particular banks (and not all of them are like this, certainly!) are reprehensible and are getting what they deserve now.
SkinnyMarie SkinnyMarie 9 years
Its the American way to live beyond your means.
Liss1 Liss1 9 years
Just because they will loan you the money doesn't mean you should take it if you know that you can not afford the payments
imLissy imLissy 9 years
this is what happens when the majority of the population is STUPID
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