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Who is at fault for the Subprime Mortgage Crisis? Finance One Online

Who is at fault for the Subprime Mortgage Crisis?

Posted on Dec 22, 2024 in Unique Loan Programs

Question by DearAbby: Who is at fault for the Subprime Mortgage Crisis?
I’ve heard opinions that the subprime mortgage crisis is the result of predatory lending, buy more about prostate uneducated borrowers, over-valued homes, and a lack of government regulation. What do you think is the main cause? Are there other causes than the ones I mentioned? How do we avoid this situation in the future?
It sounds like there are a lot of groups to blame, but how do we keep this sort of crisis from recurring?

Best answer:

Answer by Greg S
Basically it is the fault of people loaning money to people that were high risk. And people that couldn’t afford loans taking them anyway. In both cases the root cause is greed.

Add your own answer in the comments!

8 Comments

  1. Trust me, everything financial right now is because of the Federal Reserve & the world bank in this country.

    They keep printing the money, jacking up the M3 level (while they quit reporting it in 06). That’s why the value of the dollar has sunk.

    The Fed lent all these banks money to lend to all of us for the subrime crisis. Now it’s slapping this country in the face and the FED is bailing out Bear & Sterns with PRINTED money which de values the dollar even more & causes inflation.

    Think of it as an “inflation tax” coutesy of the Federal Reserve.

  2. The lenders and the borrows, and even those economists in the government who damn well should have known it was bad to encourage people who couldn’t afford it to buy a home. If you don’t have a decent downpayment, steady income, and some sort of savings for emergencies, that home will own you, not you it.

    I would hope the banks learned their lesson, but if they’re bailed out, they’re apt to repeat this disaster within a few decades.

  3. The cause is a combination of all the things you mention.

  4. I think the biggest reason is the greed of the lenders and all the other people (brokers, appraisers, etc.) who got a piece of the profits from selling houses to people who couldn’t afford them. I think any regulation will only be a band-aid for today’s problems. Just like the Saving and Loan scandal of the 80’s, this will revisit us again under a different name.

  5. It’s not just uneducated borrowers. It’s people thinking they were owed a home, that if they wanted one, they should have one. People with poor credit make one poor choice after another, and just being in their own home doesn’t make them wiser. They continued making poor choices, not paying their obligations and lost their homes.

    It’s not just predatory lending, either. It was lack of reasonable underwriting standards. It’s bundling loans up into securitized packages and selling them, making them remote from the property and home owners.

    It is many inter-related factors.

  6. One part of the reason was all these institutions esp the big wall street investment firms that wrote these subprime notes to package and resale as bounds to investors, creating a huge market for these junk loans

  7. Borrowers who can not handle their money not their credit whom were given 100% financing by predatory lending practices.

  8. You forgot the American ethic of “We Are Entitled”.

    People bought homes WAY beyond their means because they felt like they deserved them simply because they existed.

    Many of those same people are still feeling entitled, but facing foreclosure. They are waiting for the government (taxpayers) to “save” their homes. They are entitled to live in them for nothing, simply because they are Americans and deserve to live off of those of us who contribute to the tax base.

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