Those of you in the US have probably heard plenty about the collapsing sub prime loan market. I follow the global economy pretty closely myself, subscribe to the Economist, read economics books, and so on. No big suprise here; it didn’t take a genius to figure out what was going on in the housing market. Smart affiliate marketers were moving away from mortgage leads months ago.
Cheap credit simply drives up prices, increased prices make it harder for people to afford things. Thus interest-only adjustable-rate mortgages have become very popular. In the extremely hot markets, such as California, interest only was really the only option for the average wage earner to even be able to afford payments. Since housing prices had upward momentum this was not only acceptable but seen as a good idea.
Suprise, it turns out housing prices actually weren’t grossly undervalued and prices weren’t going to keep making double digit gains year after year. In fact, the fundamentals have flipped.
Now certain individuals in the United States government and special interest groups are up in arms over “predatory lending.” The complaint is that lenders were giving people home mortgage loans to essentially unqualified individuals. A direct quote from someone off CNN.com “…pushing of exotic loans on people of color, female-headed households, families with children, people with disabilities.” its a little wonky, but it gives you an idea what side of the room this predatorial worldview is coming from.
Since mortgage leads have been such a huge part of affiliate marketing and internet lead generation this is an important issue to many here. Suprising isn’t it how a “doomsday” scenario can suddenly appear in a very large industry overnight — just like we saw with gambling.
Regardless, let me get back to the point. What is predatory about this? Lets look at the reality:
1. Loaning money to someone who ends up not paying it back — who is the real loser, the borrower or the lender?
2. Is it predatory to deny a loan to someone, even if a second party is ready to hand over the money, because the government says so? (haven’t held their job long enough, make $100 a month less than required, etc.)?
3. What about the President’s ownership society? He certainly has bragged about high home ownership rates. Could he be a predator too?
4. What about Alan Greenspan dropping interest rates to the floor to bail out investors in a stock market bubble? The lower middle class with little to nothing invested in the stock market got nothing in return but rapidly inflating home prices. Not such a bad deal if they already owned. Not such a good deal for those who purchased a year or two ago. Hell, this guy even applauded sub-prime and exotic mortgages a few years ago. Could Alan Greenspan actually be the Predator-in-chief?
At the end of the day, the fact remains, investors have been gobbling up ultra-high risk loans for only a few percentage points extra gain. The government could just play hands off and lets these guys f*** themselves. Something tells me thats not quite what will happen.