Wednesday, March 21, 2007

Blaming the Victim

Another foray into subprime mortgage absurdities.

The top 5 subprime lenders in the US are going to have to testify before Congress, and no doubt they are going to be castigated for ripping people off. No doubt they will be threatened with anti-"predatory lending" legislation. No doubt they will be blasted with data like this (from this article from CNN):
Throughout the nation, the subprime loans recently made are performing very poorly. "What we're seeing is subprime 2006 loan originations are going delinquent much more quickly," said Bob Visini, vice president of marketing for First American LoanPerformance. "2006 is way ahead of previous years."
And that sounds horrible, doesn't it? But here's the truly absurd part of this - this CANNOT be the lenders' fault. This is the fault of the BORROWERS who are lying to the lenders about their capacity to pay. How do I know this? Because subprime loans are almost universally 2/28 loans, that is, they are fixed for 2 years before they adjust. Quickly, what is 2006 + 2? Well, it isn't March of 2007. In other words, these defaults are not the work of nefarious lenders that trap borrowers into loans that adjust and kill them. These defaults are the work of nefarious borrowers, and the lenders are actually the ones being harmed the most by them. Well, the lenders and the other borrowers that would like to get credit but now cannot find anyone to lend to them (they should call us; we know where the money still is).

Sen. Chris Dodd is going to be blaming someone in his hearings. Which group is going to take the blame? I'll bet it won't be the one that can vote.


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