recession and corrections to risky home lending?
Mike S asked:
I read the following in an article by George Will:
I read the following in an article by George Will:
There has been too much risky lending to unqualified (”subprime”) borrowers, who were living riskily.
Corrections are necessary: When too much housing has been built, the market must clear the inventory. Corrections can be painful: Housing prices have declined.
Can someone elaborate on this for me? I don’t get what he means by the market must cleat the inventory.
Clear inventory is just what it sounds like they have to get rid of the extra houses even at a loss but in order to build more they have to sell what they have already built. One of the ways this has been done in the past is to have variable interest rates (my opinion, this is predatory lending at it’s finest) Perhaps the current rate on a conventional loan is 6%, this is the loan that folks with good to excelent credit and with income enough will get but toa person that has not as good credit and who’s income isn’t quite what it should be they will find a loan that will start out at 5.25%, but in three years it might jump to 7.5% and even more and many of these folks will end up loosing their homes just bacause they can not pay for them. I would not have a variable loan I would rather start out with a little bit more and keep that rate than to have my interest go up. Please understand that it isn’t presented that way they aretold that the interest may ajust in three years it could even go down (no one has ever seen it go down)
now you have asked this question I will ask you who do you think is going to bail out the banks that did this to these people and now are caught with their pants down and are eating many houses,………..answer; we the tax payer.