People know that this is crashing. People know that someone will be left holding the bag on trillions in bad loans, but they are still making bad loans.
It’s simple: In our “flexible and deregulated economy” the crooks make their money, and get out of town before the house of cards collapses.
At some point, a risk premium will be associated with investing in the US, and it will get very ugly here.
Subprime lending: Business as usual
A consumer group charges that many subprime lending abuses continue to plague the lending industry despite the recent crisis.
By Les Christie, CNNMoney.com staff writer
June 28 2007: 3:25 PM EDTNEW YORK (CNNMoney.com) — It would appear that subprime lenders have yet to learn from their mistakes. According to a consumer advocate group, abuses persist industry wide, despite the recent subprime mortgage meltdown.
At a Senate subcommittee hearing on ending mortgage abuse this week, the Center for Responsible Lending (CRL) presented its findings on subprime loans included in 10 recent packages of mortgage backed securities.
“A lot of the terms that make these loans so dangerous are still being used,” said Keith Ernst, CRL’s senior policy counsel. “We had been told that these things are going away.”
More than three quarters of the subprime loans CRL looked at turned out to be adjustable rate mortgages (ARMs). 90 percent of those were hybrid ARMs – otherwise known as “exploding” ARMs.
Hybrid ARMs have two- or three-year periods of cheap, low-interest, fixed-rate payments, or “teaser rates.” But after two years, the loans reset at much steeper rates, which can prove fatal for homeowners who can’t handle the higher payments.
On a $200,000 loan with a teaser rate of 5 percent, for example, borrowers would pay about $1,074 a month. At reset, the interest rate could jump to 8 percent, adding nearly $400 to payments, which could continue to increase every six months.
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