we're beginning to hear of bills in state legislatures and so on aiming to crack down on the now infamous "sub-prime" mortgages. you'll hear the sponsor say things like "these people are selling mortgages they know the customer can't afford". My question is how can a lender profit from this?
They lay out a bunch of money they know can't be repaid?
foreclosure? that must be very cold comfort to them.
could it be that their agents are selling garbage loans for the commission? But wouldn't the actual lenders have some mechanism in place to prevent this? Could they possibly make such a dumb mistake?
2007-07-27 02:46:37 · 4 answers · asked by Robert K 5 in Business & Finance ➔ Renting & Real Estate
to acermill and godged. thanks. now their motive is obvious and I might as well close the question. I couldn't decide for myself which answer was best, so I flipped a coin. Godged won.
2007-07-27 05:16:05 · update #1
Lenders weren't concerned, as property values were going up. Lendees weren't concerned, because they figured when the ARM kicked in, they would just refinance to a fixed rate loan, and their home would be worth more, so that wouldn't be a problem.
What no one had the forethought to consider is that the housing market could not go on with the big year-over-year gains.
Sub-prime lenders got unsuspecting people into loans and houses they had no hope of affording. Many waves will be made and I predict that a bunch of pasty executives in nice suits will be sitting in front of elected officials soon, explaining what happened and what needs to happen from here.
2007-07-27 04:32:54 · answer #1 · answered by godged 7 · 0⤊ 0⤋
It was MUCH more comfortable for subprime lenders when the real estate market was constantly and rapidly going up in value. When that situation existed, fears of foreclosure did not bother the lenders nearly as much, since the increased values generally covered any loss they might be exposed to in a foreclosure.
When the market suddenly changed and the values started dropping, that security blanket disappeared. Foreclosures now started costing the lenders a lot of money because the values no longer supported the amounts loaned on the properties.
2007-07-27 03:01:27 · answer #2 · answered by acermill 7 · 0⤊ 0⤋
I think most of the people were begging for these loans. They were in trouble. We lend so people don't lose their homes. Unfortunately in some cases, we only delayed the inevitable (foreclosure).
2007-07-27 03:37:56 · answer #3 · answered by ? 4 · 0⤊ 0⤋
Republican
2007-07-27 02:54:07 · answer #4 · answered by Anonymous · 0⤊ 0⤋