The banks were not forced to make trillions in bad loans, they chose to because they could sell subprime loans to investors as a AAA security. Blaming Washington’s efforts at affordable housing is simply a plausible excuse. Lending money to people without the means to pay it back does not make housing more affordable. Washington never forced any lending institution to lend to a buyer without the means to pay it back. Lenders were eager to make these loans, there was no prodding required. The fraud was packaging subprime loans and knowingly selling it as the ultimate in safety to investors. Calling it ‘ingenious’ to deceptively sell risky loans as a safe investment seems misguided.
And while I too question the integrity of people walking away from their obligations, the abuse from financial institutions was so outrageous that qualified borrowers, who did nothing wrong beyond buy a home at the wrong time, are being held responsible for a lifelong financial burden. Grossly underwater home owners should take a look at the 20 year financial difference between staying and walking and prepare themselves for some tough choices…or tough times. I’m not saying walking is the right thing, but people need to take responsibility for their own futures. And in my opinion, walking away may well be the lesser evil…and certainly less evil than what was done to them.
It is not the job of the borrower to self qualify and turn themself down for a loan. That is the job of the lending institution. And while I don’t feel any sympathy for the borrower that should have known better, I am sympathetic to the good borrower in an underwater home because of lenders making bad loans to unqualified borrowers. The financial institutions have some responsibility for the damage that poor lending practices have caused responsible borrowers. Good borrowers were competing for homes with borrowers who banks should have known (and probably did) could never repay. Loans likely to fail, but made so they could ‘ingeniously package up and sell to investors (as AAA) and absolve themselves of the risk’.
‘Honoring’ an agreement with the same lender responsible for contributing to an abused market and unsustainable pricing is not the solution. It’s time to renegotiate the principal balance of the note. If the lender won’t renegotiate the balance, give it back. Be honest, be decent, take care of the property, but take responsibility for your own financial future… because no one else will.
