Foreclosures “catching lenders by surprise”
I was listening to MPR this morning–that’s Minnesota Public Radio for you non-Minnesotans–when Cathy Wurzer made the above comment. I laughed out lout and spilled my tea.
Banks are surprised that their loose lending and nonexistent oversight of brokers has led to a high default rate? I mean, who would have thought that if you don’t check your brokers’ numbers and you push nontraditional mortgages on populations whose income is unlikely to increase, that you would experience more defaults? Unthinkable!
The truth is that lenders and borrowers are in this together. But lenders have always had the power to reign in overly-aggressive and dishonest mortgage brokers. Borrowers don’t. Subprime borrowers really don’t, because their options for shopping around are very limited.
Lenders, if you want change, you are going to have to make it happen yourselves. Borrowers who default on their loans often have few options, and many times the inaccuracies in their loan applications are as much their fault as the mortgage brokers. I would anticipate increased regulation at the least–something banks are happy fighting at the moment–and potentially a few class-action lawsuits by state attorneys general to get the ball rolling.
