Advice on 5x Income Mortages

[FRED]

Who's to blame if a loan goes bad, the lender or the borrower?

[bart]

Re: Advice on 5x Income Mortages

Who's to blame if a loan goes bad, the lender or the borrower?

Both of them.

[Finster]

Re: Advice on 5x Income Mortages

Both of them.

Si!

Si!

[FRED]

Re: Advice on 5x Income Mortages

Geez, haven't we taught you guys anything?

"It is unanimously and without qualification assumed that when anyone gets into debt, the fault is entirely and always that of the lender and not the borrower." - Bernard Levin

The lender must assume that the borrower will borrow as much as he is offered, regardless of his ability to repay. It's the lender's job to determine whether the borrower can in fact repay. Period.

See Frankenstein Economy:

The average North American, call him Joe, living in the era of Mr. U.S. Economy, walks into a bank to get a loan to fix up his falling apart house, rather than add another thousand square feet to make room for the Made in China, Bose branded Home Entertainment center. A dour looking loan officer, call him Ed Noway, sits behind a laminate faux walnut desk facing the nervous applicant. Prominently displayed on the edge of Ed’s desk, a brass nameplate on a wood block that reads “Ed Noway, Loan Officer.” While Joe fidgets, Ed pours over a pile of paperwork that Joe dutifully spent until midnight filling out with his wife the night before. They did not cuddle afterwards. She’s not sure Joe can close the loan with Ed. Joe's not sure he wants the extra hours he’ll have to work to make the additional payments.

Ed finally looks up to grill Joe about his employment and credit history, his assets, his attitude about saving. Ed wants to know if Joe is likely to pay the loan back or not. He, Ed, the loan officer, is responsible for the decision. He doesn’t want the bank, nor he as its representative, left holding the bag if Joe punts on the loan. Ed will look bad. He might even lose his job. Ed’s ass is on the line. So is Joe’s.

Here we have the basis for a sound business transaction. But those days are over. The Frankenstein Economy is here.

[bart]

Re: Advice on 5x Income Mortages

Geez, haven't we taught you guys anything?

"It is unanimously and without qualification assumed that when anyone gets into debt, the fault is entirely and always that of the lender and not the borrower." - Bernard Levin

The lender must assume that the borrower will borrow as much as he is offered, regardless of his ability to repay. It's the lender's job to determine whether the borrower can in fact repay. Period.

See Frankenstein Economy:

I'm so ashamed... I've just gotten out my sheep costume and will join the crowd... ;)





I actually don't intend to make light of your points, since they're sadly quite true, and the saddest part is how strongly those habits and behaviors are ingrained... the Great American Way of Credit.

[DemonD]

Re: Advice on 5x Income Mortages

I still say both.

I could have easily gotten an interest-only loan to buy some 500k dollar condo here in LA for no money down.

Since I can't afford that much of a loan, I didn't.

It takes 2 to tango.

[Jim Nickerson]

Re: who's to blame for bad loans?

http://www.financialsense.com/fsu/ed...2007/0107.html

An interesting article referenced to Australia where courts have held for the borrower when the lenders failed to seriously assess low-doc, no-doc loans to sub-prime borrowers.

"Jon Denovan, a prominent Consumer Credit lawyer, has warned his banking and finance clients that “there’ve been six cases that I think are important…. In all cases the money should never have been lent to the people because blind Freddy should have known it… the judge is saying that you can’t just shut your eyes and act recklessly.”
Consumer credit lawyers now warn that the Khoshaba case is “just the tip of the iceberg”, and that “buyer beware” has now been replaced with “seller beware.”"



I believe if lawyers in Australia can sue people for things like above, they ain't seen nothing yet until it takes place in the home of most of the world's lawyers.

[blazespinnaker]

Re: Advice on 5x Income Mortages

I still say both.

I could have easily gotten an interest-only loan to buy some 500k dollar condo here in LA for no money down.

Since I can't afford that much of a loan, I didn't.

It takes 2 to tango.

I agree, we're all responsible for our own actions.

[Jim Nickerson]

Re: Advice on 5x Income Mortages

I agree, we're all responsible for our own actions.

When it comes to lawyering, they can be successful in "proving" whatever is to them most lucrative to prove. Too many people are foolish, significant institutions should not be, but if they wish to be greedy masquerading as foolishness, perhaps they should be taken to task for their ill behaviors.

[EJ]

Re: Advice on 5x Income Mortages

Anyone who is for some reason confused about this I have a suggestion that makes the question less academic.

Get on Prosper.com, fund your account with a few thousand dollars of your own money and start looking for borrowers. When it's your own money you're lending, you figure out pretty darned quick who's fault a bad loan is. Even if the borrower is not telling the truth. When you're lending your own money, it's still your job to figure out if the borrower is being truthful or not. Maybe they are lying to themselves. Doesn't matter. At the end of the day, after you make a loan, he or she has got your money.

Same is true of banks, except the banker is not lending his own money. If he screws up and lends a lot of other people's money (OMP) to people who can never pay it back because the interest rates he can charge are so high, who is supposed to save him when they inevitably default?