A Stitch in Haste

Think the Democratic presidential candidates would pay attention to this?

While some degree of early defaults are to be expected in subprime mortgage pools, the extraordinarily high level of defaults encountered by the 2006 vintage cannot be explained by home price declines alone. It has become increasingly evident that loans originated with lax underwriting and higher instances of fraud can have a material impact on a securitization.

They’re not called “no income verification” mortgages for nothing:

BasePoint Analytics LLC, a recognized fraud analytics and consulting firm, analyzed over 3 million loans originated between 1997 and 2006[.] … Their research found that as much as 70% of early payment default loans contained fraud misrepresentations on the application.

No one laments how the unethical borrowers who lie on the mortgage applications “exploited” the unfortunate bank. Nor should they: If you lend down with dogs, you wake up with fleas.

But that should work both ways: What is so “cruel” about being unsympathetic to those who deserve no sympathy? Competent consenting adults, hoping to game the system, got burned — not by any “predatory lender” but by their own miscalculation (dare one say “their own greed”?). They could have stayed out of the housing market. They could have waited until their finances and credit improved. They could have done their homework before they signed the forms. They could have been, forgive the repetition, competent consenting adults.

Instead they try to cry foul and play victim of imagined Silas Barnabys — and succeed? That simply cannot be right.

This is comparable (worse, in fact) to the “exploited” college student who opens up her first credit card account, promptly buys $1,000 worth of DVDs, pizza and airfare to Daytona for Spring Break, none of which she can afford, and subsequently becomes fodder for bill collectors. The pesky fact that she got to enjoy the money while the bank is out $1,000 doesn’t stop malcontents from insisting that the student is somehow the “victim” and the bank is the “predator.” It makes no sense at all.