Subprime Mortgage Fondue


“You’ll never find a more wretched hive of scum and villainy”. Obi-wan should have been talking about the mortgage industry. Let’s face it, this situation was caused by a spectacular combination of greed and stupidity. Mortgage lenders were eager to loan money at usurous rates to folks who had no business borrowing the money. They created loan instruments that were certain to melt down and folks who were in no position to borrow eagerly gobbled them up. Is anyone really shocked that the thing imploded? And all this righteous indignation for folks who couldn’t afford the loans, losing the things they never had, and couldn’t really afford to buy anyway… Bah. This is how economics works. Everyone understands the repo man. This just has to do with a home instead of a car (that you probably couldn’t afford, either).

The people who couldn’t afford the homes in the first place are losing them. The people who were stupid enough to loan them the money in the first place are losing their asses on their balance sheets and in real terms. The only thing that could make this better is government intervention. Hold on, wait for it…

The House this week voted 291-127 to pass the Mortgage Reform and Anti-Predatory Lending Act, Congress’ first major attempt to prevent a recurrence of the ongoing subprime meltdown. The bill, supported by every Democrat and 64 Republicans, stabs at the heart of the meltdown by:

  • Establishing a national licensing and registration system for mortgage lenders;
  • Establishing the Office of Housing Counseling within HUD to help borrowers avoid foreclosure;
  • Banning loans that a borrower cannot reasonably repay;
  • Banning lenders from steering borrowers towards loans with predatory characteristics;
  • Making banks that securitize mortgages liable for violating lending laws.

I’m just surprised that their isn’t legislation afoot to bail out the borrowers and the lenders from their own greed and stupidity. It’s not here yet, but there’s still lots of election pandering to come.


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