On 1/4/2014 9:24 PM, Sancho Panza wrote:
On 1/3/2014 8:19 PM, jim wrote:

There was one reason that lenders lowered lending standards
and that was the private sector quest for profits.

Flaunting abject ignorance about basic economics and markets. As if
businesses wanted to make loans that fail.

The hell with snicker. Facepalm.



IIRC, weren't they FORCED to make the loans by the government?

Steve

SteveB wrote:

On 1/4/2014 9:24 PM, Sancho Panza wrote:
On 1/3/2014 8:19 PM, jim wrote:

There was one reason that lenders lowered lending standards
and that was the private sector quest for profits.

Flaunting abject ignorance about basic economics and markets. As if
businesses wanted to make loans that fail.

The hell with snicker. Facepalm.


IIRC, weren't they FORCED to make the loans by the government?

No you are wrong. Subprime lenders and the private financing
that supported them were in the business of making bad loans
for profit. Nobody had their arm twisted. They were doing it
solely for the profits.

You are just making up a story based on your unsupported
belief that businesses would not want to make bad loans.
You don't need to make up a story about
govt forcing lenders to explain why they did it.

Here is how huge profits were made on loans that were
designed to fail:

First of all, interest rates were much higher for subprime
loans. The high cost made those loans profitable even if
the loan didn't fail. The US didn't end up with a
surplus of 40 million houses that people can't afford to
live in by making affordable housing loans in low income
neighborhoods.

http://grist.org/list/america-has-40...-no-one-wants/

70% of subprime originations were refinances of ex-
isting mortgages. Those loans had nothing to do with
politicians wanting to expand home ownership. Most of
the bad loans were designed to profit from taking away
existing home ownership.
If the loan failed the lender got the owner's equity.

80% of subprime the borrowers started out with low
monthly payments with huge increases after 1 or 2 years.
This meant the only way most borrowers could afford to
keep the house was to refinance every one or 2 years. The
refinance fee structure meant the lender could harvest all
the equity gains in the house every 1 to 2 years.

All subprime loans had huge prepayment penalties. This
meant that if the lender sold the house to get out from
under the loan the lender made more than if borrower
kept the loan and continued to pay.

The high default rate of subprime loans was hidden from
the investors that were the source of subprime financing.
All the investors could see was that the loans were producing
excellent rate of returns. The investors didn't understand
that the profits would disappear when the price of houses
started to drop. And even the few that understood didn't
believe it was possible for house prices to drop.

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