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Sub-Prime Fraud

2007-07-18 18:01:42.953195+00 by ebradway 4 comments

Fed Chairman, Ben Bernanke, warned that the housing market's going to get worse before it gets better. He described sub-prime lenders with the terms: "abusive lending practices and outright fraud". He also is warning there there won't be a Federal bail-out of sub-prime lenders.

[ related topics: Economics Real Estate ]

comments in ascending chronological order (reverse):

#Comment Re: made: 2007-07-18 18:26:37.981374+00 by: Dan Lyke

"One thing we should be a little careful about is that we don't want to reward lenders for making bad loans," Bernanke said. "We don't want to get into sort of a bailout situation, where essentially lenders who make bad loans find themselves getting paid off."

Okay, but how about rewarding borrowers for their stupidities? Please say something on that...

#Comment Re: made: 2007-07-18 18:43:58.713158+00 by: ebradway

The biggest problem I see with bailing out borrowers is that it would lend Federal legitimacy to the prices paid for the houses. But alas, it is the borrowers who are voters and it is the borrowers who'll be out on the street - not the lenders.

The Economist has had several articles comparing the US sub-prime market to the UK sub-prime market (which isn't seeing corporate bankruptcies). By their estimates, the problem really rests in how the sub-prime lenders managed the increased risk of the loans they were writing.

But I'd bet if you follow that train of thinking far enough, you'll probably find some Federal regulation that prevented the sub-prime lenders from properly managing the risk (e.g., charging enough for PPI). If that's the case, then the sub-prime lenders would have a pretty solid case to sue the government for a bail-out.

#Comment Re: made: 2007-07-19 05:57:46.11218+00 by: dexev [edit history]

Just dropping a link for Calculated Risk, which I've found to be a great resource on all things housing-bubbly.

#Comment Re: made: 2007-07-19 13:47:39.3763+00 by: ebradway

dexev: Thanks for the link. I found their link to Mortgage Lender Implode-o-Meter even better - it's almost like a F*cked Company for the Housing Bubble.

Near the top of their articles:

Fed to crack down on lending practices.