Apr 11, 2013
Columnist warns about the return of sub-prime loans
11 Apr 2013
Posted by Andrew Kantor
In case you don’t remember, the housing crisis we’re finally getting out of was caused by, at its core, people getting mortgages they couldn’t afford. Blame the borrowers, blame the lenders, whatever — that was the root of it all.
That was the sub-prime market: loans to people who didn’t have great (aka “prime”) credit. And that’s why we have all these new rules and regs and requirements: to prevent people — many of whom didn’t know any better — from borrowing more than they can afford. (Or at least shielding taxpayers from lenders willing to take the extra risk on those people.)
But now, argues (warns!) columnist Jack Guttentag, FHA is offering sub-prime loans “eerily similar to those of the private market that went into hyper-drive in the 2000s, and collapsed in 2007.”
If FHA is willing to take subprime borrowers, he says, that means banks will also be willing and able to do so — foisting those loans (and risk) onto FHA. That is, you and me.