It has become fashionable of late to say that American sub-prime borrowers themselves deserve a good part of the blame for the current mortgage mess. They were either greedy (looking for easy money in a bubbly real estate market) or irresponsible (assuming a debt whose terms they did not understand) reports the International Herald Tribune.

 

They should be punished for their behavior; the argument goes - not rewarded with loan accommodations.

 

According to this analysis, while sub-prime lenders may not be blameless, they actually should be lauded for introducing the joys of homeownership to those who had not yet achieved that part of the American dream. Never mind that many lenders peddled the most abusive and costly loans to unsophisticated, first-time home buyers.

 

Known as “affordability products,” the mortgages generated big commissions up front and were designed to require refinancing later on - which included yet another round of luscious fees for lenders.

 

With refinancing no longer an option, it is becoming obvious that these loans were designed to fail. True to their design, they are failing. And those who thought they might get a chance at owning a home are headed back to the rent rolls.

 

Figures from the U.S. Federal Reserve Board show that the share of sub-prime mortgages in default is more than 14 percent. And researchers at the Center for Responsible Lending say that 64 percent of foreclosures filed during the 12 months ended June 30 involved sub-prime loans. A September report from Banc of America Securities said that 93 percent of completed foreclosures this year involved adjustable-rate loans that were made in 2006, pooled and sold to investors.

 

Read it here: Shouldering the Blame for Sub-prime Loan Failures