Monday, December 03, 2007

Subprime Lending and Predatory Practices

This Wall Street Journal article points out an interesting side note to the current housing crunch: many of the people in subprime loans could have qualified for conventional ones.

The reasons someone would go for the riskier loans are complex, but mostly boil down to risk-taking. Many people simply thought they could beat the system.

Of course, anyone who's gone to Las Vegas knows that the odds are stacked against them. That doesn't stop thousands of people from wasting their money in casinos and slot machines anyway. Subprime mortgages seemed a similar risk for some people.

The terrible part of the mortgage process is that lenders aren't required to give you the best deal for which you qualify. Like the car salesman who sold my 81-year-old father (Dad has Alzheimer's) a car over the phone, mortgage dealers just had to make sure borrowers signed on the bottom line.

There are calls for the government to "do something." Some sites compare the housing bubble burst to the Crash of 1929. I don't think this is anything like that, but it seems to me that some of these predatory practices do need to be curbed. Borrowers aren't necessarily that smart when they are dreaming.