Posts Tagged ‘subprime mortgages’

If Banks Can’t Do Subprime, They Won’t Lend At All

A full third of Americans cannot qualify for a mortgage these days, recent data from Zillow.com and MyFico reveals. Would-be homeowners with credit scores at 620 or below are not being approved for traditional 30 year mortgage, even when they come with a healthy down payment of 25% or more.

In the days of glory before the housing bubble burst, these folks would have been steered into dangerous subprime loans that we know today were doomed to fail. Despite the fact that in most cases, this same group of people would have done fine with a conventional loan,  the banks wanted to increase their profits to extreme proportions.

Today, with foreclosures at record numbers and some banks being left holding the bag, most banks do not want to risk lending to people with low credit scores, all other things being equal. This is particularly troubling since many Americans have seen their credit scores take a hit from the bad economy. The housing market is weak enough, and banks not lending is a major factor in the continuing sluggish growth of the economy.

“They Have Become Literal Sociopaths” –William Black On Bank CEOs

William Black,  author of “The Best Way To Rob a Bank Is To Own One” was interviewed by Bill Moyers on April 23 regarding the massive fraud that exists in our financial system and the role it played in the current financial crisis.  Read the transcript here or watch the video here.

Mr Black said that two things created the environment in which the financial crisis occurred:

1: No regulation

According to Mr. Black, this wasn’t a case so much of there being no regulatory authority to deal with the banks, although indeed, more regulations are needed, it was a case of the government being unwilling to act using existing laws, even after it was made aware of the impending crisis in subprime mortgages and the housing bubble.

He mentions former Fed Chairman Alan Greenspan’s refusal to use a 1994 law granting the Fed the ability to regulate all mortgage lenders after being advised that a housing bubble was developing and there was a major problem with sub-prime loans.

2: Compensation

Mr Black on CEOS:

We now have the entitlement generation as CEOs. They just plain feel entitled to being wealthy as Croesus with no responsibility, no accountability. They have become literal sociopaths

Further than that,  Mr. Black said that there are incentives at every level to cheat, to make deals regardless of the ramifications to others and to the economy as a whole.

So, with all of this fraud being uncovered, why aren’t people going to jail, or at the very least, why haven’t there been any criminal indictments handed down? Mr. Black also explained why:

There’s a huge part that is economic ideology. And neoclassical economists don’t believe that fraud can exist. I mean, they just flat out — the leading textbook in corporate law from law and economics perspective by Easterbrook and Fischel, says — I’ll get pretty close to exact quotation. "A rule against fraud is neither necessary nor particularly important." Right?

Notice how extreme that statement is. We don’t need laws. We don’t need an FBI. We don’t need a justice department. We don’t even need rules like the SEC. The markets cleanse themselves automatically and prevent all frauds. This is a spectacularly naïve thing. There is enormous ideological content. And it fits with class. And it fits with political contributions.

Do you want to look at these seemingly respectable huge financial institutions, which are your leading political contributors as crooks?

Watch the video, but not on a full stomach. Again, the link to it is here.

Bad Credit Financing: Designed For Failure

bad credit

Lenders and brokers who loan money to people with lower incomes and spotty credit will all claim that they provide a valuable service to a community that is underserved by traditional lenders. But do they really? Or are they instead exploiting the plight of our most vulnerable citizens by promoting an endless cycle of debt and making a killing off the interest and other fees they charge?

While it is a good idea to give people who might not normally have the access to financing a leg up, surely that leg up should not also come with a heavy weight attached to it in the form of draconian and exotic terms that make it close to impossible for the borrower to successfully meet his obligations.

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