“lax lending practices earlier this decade led to irresponsible lending and irresponsible borrowing.”

[Black Landlord]

mikeylikesit wrote:
When I wuz a mere youth, lenders didn't lend to people who wouldn't pay them back. The lenders went out and got the rules changed and now you don't seem to want to hold them responsible for being irresponsible.

Why is that?

Show me where anyone in this thread stated that lenders should not be held responsible.

[DaveS]

mikey,

You originally asked a question....
Could anyone here explain to me how there can be irresponsible borrowing without there first being irresponsible lending?

I simply gave ONE account of how that was possible - directly answering your question. I did NOT say anything else.

YOU have implied from there. I certainly understand and agree that there other scenerios where the banker, or real estate agent, other credit pusher's ARE responsible - BUT THAT WAS NOT WHAT YOU ASKED. READ YOUR QUESTION!

....By Dave's account. the banks and lenders are the victim of swindlers and thieves. I doubt that was the real case; even he'd be hard-pressed to make that scenario as being the norm.

Dave has this knee-jerk problem. Someone should get him to a neurologist.....


I would also point out the following for you and others....
http://en.wikipedia.org/wiki/Subprime_mortgage_crisis
"Misrepresentation of loan application data and mortgage fraud are other contributing factors.[38] US Department of the Treasury suspicious activity report of mortgage fraud increased by 1,411 percent between 1997 and 2005. [36]

American Economist Hyman Minsky described three types of speculative borrowing that can contribute to the accumulation of debt that eventually leads to a collapse of asset values:[39][40]the "hedge borrower" who borrows with the intent of making debt payments from cash flows from other invesments; the "speculative borrower" who borrows based on the belief that they can service interest on the loan but who must continually roll over the principal into new invesments; and the "Ponzi borrower" (named for Charles Ponzi), who relies on the appreciation of the value of their assets (e.g. real estate) to refinance or pay-off their debt but cannot repay the original loan. All of these practices in some form or another contributed to the accumulation of debt that preceded the subprime crisis.

Unfortunately the Mortgage Forgiveness Debt Relief Act of 2007 removed incentives for borrowers to remain in their homes."

There is also this...
Effect on insurance companies

There is concern that some homeowners are turning to arson as a way to escape from mortgages they can't or refuse to pay. The FBI reports that arson grew 4% in suburbs and 2.2% in cities from 2005 to 2006. As of January 2008, the 2007 numbers were not yet available.[115] [116]

[mattkime]

>>There is concern that some homeowners are turning to arson as a way to escape from mortgages they can't or refuse to pay.

or perhaps the properties were so HOT that they burst into flames!!!

[Seacrest]

DaveS wrote:

But he decides the following Christmas to spend more than he should, goes on vacation, etc. and is back up to $5,000 and a payment he can not afford. He's back to square one - in debt for more than he can afford.

Ain't the banks fault. The bank can not control how much OTHER credit a borrower decides to use. The bank was not irresponsible, the borrower was.

I am no expert in high finance, but weren't these kinds of situations already accounted for in the calculations of credit scoring systems and other risk-assessment models?

[DaveS]

Seacrest wrote:
[quote=DaveS]

But he decides the following Christmas to spend more than he should, goes on vacation, etc. and is back up to $5,000 and a payment he can not afford. He's back to square one - in debt for more than he can afford.

Ain't the banks fault. The bank can not control how much OTHER credit a borrower decides to use. The bank was not irresponsible, the borrower was.

I am no expert in high finance, but weren't these kinds of situations already accounted for in the calculations of credit scoring systems and other risk-assessment models?

Seacrest,

Not in the example as I laid it out. Here's why, our homeowner had already qualified for both the CC and the mortgage. Assuming (again theory) he can manage both a $250 a month CC payment AND a $750 mortgage payment i.e. total debt payments of $1000.000

When he refinances the mortgage goes to $825 and the CC goes to zero i.e total debt payment of $825. He's CC rating is still within range to qualify for the 5% mortgage. And he can still maintain a balance on the CC for up to $175.00 a month.

The bank - nor the CC issuer - has no way to insure that he doesn't go above that. That is his responsibility.

[Black Landlord]

mattkime wrote:
>>There is concern that some homeowners are turning to arson as a way to escape from mortgages they can't or refuse to pay.

or perhaps the properties were so HOT that they burst into flames!!!

Matt, I would like to understand your disdain of people who choose to own rather than rent property.
Does anyone own the building you live in? Are you resentful of the need to pay rent, if so?

[Seacrest]

DaveS wrote:
[quote=Seacrest]
[quote=DaveS]

But he decides the following Christmas to spend more than he should, goes on vacation, etc. and is back up to $5,000 and a payment he can not afford. He's back to square one - in debt for more than he can afford.

Ain't the banks fault. The bank can not control how much OTHER credit a borrower decides to use. The bank was not irresponsible, the borrower was.

I am no expert in high finance, but weren't these kinds of situations already accounted for in the calculations of credit scoring systems and other risk-assessment models?

Seacrest,

Not in the example as I laid it out. Here's why, our homeowner had already qualified for both the CC and the mortgage. Assuming (again theory) he can manage both a $250 a month CC payment AND a $750 mortgage payment i.e. total debt payments of $1000.000

When he refinances the mortgage goes to $825 and the CC goes to zero i.e total debt payment of $825. He's CC rating is still within range to qualify for the 5% mortgage. And he can still maintain a balance on the CC for up to $175.00 a month.

The bank - nor the CC issuer - has no way to insure that he doesn't go above that. That is his responsibility.
There is this company called Fair Isaac and Co.
They developed sophisticated software that banks used to use to suss out little details like the one you describe. This was way back in ancient times, say 2000 AD.

They called this, I believe, borrower "capacity." That is, they looked into the future, by looking at the past, and determined whether or not the loan applicant would -- based on whether said applicant had sufficient assets and income, minus their liabilities (that would be other debt like CC, SL, etc), be able to pay the loan back. (The other two criteria they used then were "collateral" -- they used to insist that the house they were lending on was worth at least the amount they were lending [imagine that!], and "creditworthiness" -- which is the borrower's willingness to pay.)

The banks and mortgage brokerages, though, didn't particularly like FICO telling them that loans couldn't be underwritten, and fees not collected, so many of them bypassed these checks and balances, and even tried to cut Fair Isaac completely out of the loop.

The reason they felt they could do this was because, at that time, instead of having to either wait the 15-30 odd years for the principal and interest to come back to them or making sure the loans conformed to the somewhat strict guidelines of the GSEs, they were now able to package these mortgages up with a bunch of other ones and sell them off as securities to who-knows-who and collect a big bunch of fees for doing THAT as well. (I won't even get into the "credit default swaps" and other arcane Vegas-style stuff I don't understand.)

So it's not like the banks have always been easily snookered.
It's more like they were willfully looking the other way, or actively trying to subvert their OWN lending standards while the credit bubble was inflating, and now REFUSE to take the responsibility for their failures now that the bubble has burst.

[vision63]

Lenders. My patootie. They've been gunslingers since my heady days of being a manager at Security Pacific Bank (talking about low pay). It's pretty much every man for himself now.