mike777, on Feb 10 2010, 09:12 PM, said:
my guess is all or almost all of us buy a home in the hope we can pay for it the next 30 years, not today, but we understand that is just a guess, often a wild guess.
In any event I dont see that most or almost all of these default home loans were reckless, they may have been but I think we do not have solid facts to claim they were.
OTOH I do think that the speculative loans were, well, speculative.
The trick is to make sure that people speculate with their own money. Or with their employer's money if they are employed to do so. Perhaps they thought they were, but in fact it is I and every other citizen that has been left holding the bag.
The difference between the loan I had and m any of these speculative looans is, as I understand it, pretty clear. Of course if I lost my job or suffered some catastrophic financial reserve, there would be a good chance that I would default. To protect against this, the bank wanted to know many things, for example if I had tenure (I did). But barring catastrophe, my finances were such that I could make my loan payments. On a fair number of these loans, as i understand it and I think is generally acknowledged, more was needed. In particular housing prices had to continue going up. The loans were set so that interest rate would or at least could go up, the idea was that the loan could be renegotiated when the equity increased through this rise in value. Basing a loan on such an assumption is taking on a different sort of risk. One is just a normal unavoidable risk of life, the other is placing a market bet.
Fundamentally, the professionals were supposed to know better, and minimizing the persception of risk for unsophisticated home buyers is not something the industry can be proud of. But worst of all, when it all came apart, it wasn't their money. When the ***** hit the fan, they were in their yachts watching from a safe distance.