| mrstickball said: The bankers were idiots in giving out the money, and the people were stupid for not doing their homework and realizing the predatory lending practices that were going on. |
I agree people were stupid for buying something they could not afford, but the banks were being incentivized by government for giving the loans. If banks gave a certain percentage of subprime loans, then they got a better deal on all their loans. It was Congresses way of putting poor people into homes.
That would have worked if people only bought homes they could afford. They didn’t. They used the constant increase in home values to buy homes they could not afford, gambling that when there payment went above what they could pay, that they could just refinance and use the increased value to do the same thing all over again. That only works until home builders meet demand for an ever increasing home owner base. Before the “Community Reinvestment Act' of 1999”, home ownership was a constant 60% of the population. When builders finally caught up, it was 75%. That means 20% of home owners had loans that if banks were left to their own devices, would have never given. Banks traditionally are not in the business of throwing good money after bad.
For years Congress got reports from independent auditors telling them that Fanny and Freddie were in trouble. Congress chose to ignore it. Telling a booming economy that subprime lending has to stop, and people who should not buy a home now can’t, is not in fashion. Waiting until it’s too late and then blaming everyone else seems to be though.
