I've written in the past here and elsewhere that one potential answer to a large foreclosure issue is decreasing the availability of sub-prime loans by making borrowers qualify at a higher rate than the teaser. One way to do that? Inman news reported that another sub-prime based lender closed up shop - http://www.inman.com/hstory.aspx?ID=62950 - and that is one sure fire way to stop the sub-prime lending, close down the lenders!
Let me be perfectly clear; I am not for closing down businesses and laying off over 300 workers in the process. I think sub-prime loans offer a chance for some people to own property who don't meet certain guidelines set by some lending institutions, which is great for both the buyer and the economy. BUT .......
I'll come back to that. On my plane out of Denver tonight I sat next to a nice man who asked me about my business (we had some time to chat, what with the 4 hour delay) and then about the market. He was very interested in my take on the foreclosures and sub-prime lending. I guess he had been watching TV or reading the paper or something. I explained my views of the overall market, as well as some local market conditions first, and then I explained about the two types of lending situations that are very different, but show similar signs.
Predatory Lending vs. Sub-Prime Lending
Predatory is going after someone who either can't understand or is unable to figure out the loan product being offered, or is made to think they understand or need the product being offered, and is taken advantage of by the lender for the sake of profit.
Sub-Prime is lending money to someone using alternative guidelines on a mortgage product that allow a person whose credit (or lack therof) would normally prevent them from obtaining a loan.
My thoughts on all of this is that when done correctly by a reputable banker or broker, Sub-prime borrowers can fulfill the dream of homeownership while at the same time making everyone a little money in the process, including the borrower. When done poorly, or in combination with some predatory motives, sub-prime becomes the same catch-22 that engulfs the predatory market base. Borrowers become pawns in money making schemes against their will and end up with high payments and declining value. And Fraud falls into neither of these categories, even though it is "headlined" under the same HUGE regulatory, association and news item that all of the others are;
Foreclosures and sub-prime lending