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Predatory Lending?

The Tampa Tribune

Published: May 3, 2008

At the center of the housing crisis, we're told, is someone called the "predatory lender." Such is the myth driving the housing debate in Washington, where both Democrats and Republicans are rushing toward a mortgage bailout.

Of course there are unscrupulous mortgage brokers and bankers, just as there are unscrupulous politicians. They earned their fees by deceiving people into taking foolish subprime loans. Then, as "securitized" mortgages, the bad debt was unloaded onto investors.

But the real cause of the housing mess is a classic bubble in the housing market, the bursting of which has hammered lenders as well as borrowers. If the housing market had continued to rise, we never would have heard complaints about subprime loans.

In fact, Washington had long encouraged these sorts of loans through the Community Reinvestment Act. CRA was a way to make marginal - largely minority - borrowers into homeowners.

What's the difference between socially responsible loans extending the American dream to deserving people with poor credit histories and predatory lending? It's whether those loans work out or not. If they don't, lenders suddenly become "predatory."

For a glorious few years, all the rules were suspended. Wall Street gobbled up subprime loans on the secondary market because the old underwriting standards seemed to be for fuddy-duddies.

Washington can now make it into a morality play, but it partook of the delusion: Both political parties celebrated the increase in homeownership; the Federal Reserve expanded the bubble with historically low interest rates; and the CRA positively demanded improvident lending.

Out of the 46 million mortgages in the country, 42 million are being paid on time by people called "taxpayers." What they should fear is not foreclosure so much as the taxpayer-funded bailout schemes of predatory politicians.

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