Here We Go Again

[Hawk4value]

The Washington Post article below discusses Obama's efforts to encourage banks to again make mortgages to highly risky credit individuals. I guess here we go again.

 

http://www.washingtonpost.com/business/economy/obama-administration-pushes-banks-to-make-home-loans-to-people-with-weaker-credit/2013/04/02/a8b4370c-9aef-11e2-a941-a19bce7af755_story.html

[rkbabang]

After reading your summary I was hoping the link would be from The Onion, not the Washington Post, but I should have known it had to be true. You just couldn't make something like this up.

[HJ]

Here's another article on subprime auto:

http://www.cnbc.com/id/100612622

 

I guess one of the question is whether there is a role for subprime financing at all in a society.  In that auto finance article, they mentioned a high default rate of 25%, but that also implies that there are another 75% of people who looked like the profiled borrower at the time of loan origination, who are getting financing, but otherwise wouldn't have.  Is that an economic transaction that should be allowed to happen in the society, assuming everybody fully discloses everything, and nobody would ultimately be bailed out by the government?

 

 

[jay21]

Here's another article on subprime auto:

http://www.cnbc.com/id/100612622

 

I guess one of the question is whether there is a role for subprime financing at all in a society.  In that auto finance article, they mentioned a high default rate of 25%, but that also implies that there are another 75% of people who looked like the profiled borrower at the time of loan origination, who are getting financing, but otherwise wouldn't have.  Is that an economic transaction that should be allowed to happen in the society, assuming everybody fully discloses everything, and nobody would ultimately be bailed out by the government?

 

I have been discussing the weakening subprime auto market for a few months.

 

There's definitely a place for subprime loans in society.  People have credit scores tarnished by non-recurring situations like divorce and medical bills.  That is the target market for smart subprime (like NICK).  When people are originating to sell and reaching for yield, you usually have perverse incentives and much worse economic lending that leads to booms and busts.