General Question

nikipedia's avatar

Should lenders be allowed to make loans they don't expect borrowers to be able to repay?

Asked by nikipedia (27519points) July 21st, 2008

Do you think society should say, “caveat emptor!” and let consumers borrow their way into holes they can never get out of, or should they be legally protected (prohibited) from taking out loans they can’t reasonably be expected to repay?

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6 Answers

marinelife's avatar

No, they should not. It is greed on their parts. Should people think responsibly and not take on more debt than they can? Of course. In the case of some of these outrageous mortgages, though, they should never have been legal to sell, because they violate all the precepts of financial prudence.

In defense of the idiot buyers caught up in this mess, if you ever bought a home, you know that the paperwork and the process have been rendered so Byzantine and labyrinthine that it is extremely difficult to understand what you are signing up for.

The burden to understand that has been placed on the consumer is huge and the yet the tools to help them understand are not there.They really don’t want consumers to know. Regulation simplifying the process and forcing them to disclose in plain English would go a long way to helping.

anonyjelly16's avatar

I’ve thought of this in tangible terms. E.g. Highways. We have speed limits because an average person simply doesn’t realize that his 2000 pound car has a certain amount of momentum and takes a certain amount of distance to come to a full stop to avoid an accident. Similarly, we can’t get a driver’s license unless we attain certain physical and mental maturity.

So, why is it that there are no guidelines/limits to lending practices? And, if there are, how and why were they ignored?

If we had strict guidelines which lenders were forced to adhere to, many people would not have been able to afford homes—but then they wouldn’t have made three years of payments and lost their homes either.

I guess the short answer is “No.” Lenders should not be able to make loans that are mathematically impossible for borrowers to repay.

Lightlyseared's avatar

No. NINJA loans are what caused the current financial problems.

Knotmyday's avatar

No. The whole sub-prime, creative financing scheme should have been nipped in the bud years ago. It was suggested to me during my pre-escrow negotiation three years ago, and even then it sounded like an incredibly stupid risk to take with your finances. My exact words were “Are you kidding me? Hell, no!”
I can see that the lower initial monthly payment would sound appealing; and that is why the lenders focused on lower-income families- which to me, is criminally inexcusable.
I hope there is a litigable recourse for those people.

gooch's avatar

No because their default hurts everyone. The banks must be bailed out by the government and we essentially are the government.

allengreen's avatar

Ronald Reagan would disagree. Reagan deregulated lending standards with the help of John McCain and Phil Grahm back in the early 1980’s. The S&L crisis followed, followed by an enormous taxpayer bail out, and McCain helped Keating avoid prosecution—Neil Bush got over $2Billion of tax payer money to bail out his defunct S&L.

Those who do not know history are doomed to repeat it.

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