I’m part of the “personal responsibility” crowd, but I’m also part of the “What did you all expect?!?” crowd.

I’ve been singing this song for more than seven years now.

Let’s be very clear about who has subprime loans. It’s NOT all about some poor family who’d be in the projects otherwise.

Many many people holding subprime loans are middle income folks who have champagne tastes on their microbrew beer budget. They’ve creatively financed their way into million-dollar homes that they could never afford otherwise.

I think we’ll find that a lot of people who are losing homes in the subprime crash are people who took risks on houses they thought they could flip or people who vastly overextended themselves.

And the New Home Construction industry played on that to a great degree. When we built our home 8 years ago it was a different world. Subprimes became really hot about two years after we built, and all of a sudden it wasn’t enough to buy a house.

Builders, knowing that people wanted the fancy stuff they saw on HGTV, started sticking Corian countertops, jacuzzi tubs, marble entryways, etc. in what used to be STARTER homes. Because they knew that the moneylending tree was green and it was very easy for homebuyers to overextend. As long as they got their money, it didn’t matter.

So, yeah, I blame the borrowers. But I also blame the builders who dangled expensive carrots simply because they knew that people would be desperate to borrow the money for their dream home.

I don’t care if the speculators lose their asses on houses they intended to “flip.”

I blame the borrowers last in this mess. I am pretty damn credit savvy, and I know a great deal about contracts and I pay attention to terms. Yet, I know I closed at a higher rate than I should have, mainly because the process is so non-transparent (whats a shorter word?) and in most cases so stressful precisely because when you build, there are a million details to tend to, and I have seen otherwise happy couples driven to the point of divorce over friggin drawer pulls.

True, I wasn’t sub-prime, but imagine someone else with little or no experience with home buying or building, coupled with a tendency to trust Real Estate Professionals and their partners in crime (not all of them) Mortgage Brokers. Add to that the fact that most Americans are financially illiterate. (If you don’t believe me, listen to Dave Ramsey one afternoon…”Dave, you mean I should get rid of this 29% credit card? But it gives me CASH BACK!”
Of course there is at least some caveat emptor applicable in the process, but just because people tend to take advantage in the marketplace doesn’t mean that they should get away with it.

We’ve kept this economy afloat on cheap money provided by some dubious trade partners, and it’s way unweildy and destined to topple over.

Oh, and it’s not just sub-prime. There are many loans out there right now with balloons or teaser rates that will ultimately spell disaster for those holding them.

Katherine:
Many many people holding subprime loans are middle income folks who have champagne tastes on their microbrew beer budget. They’ve creatively financed their way into million-dollar homes that they could never afford otherwise.

That’s true, and a valid point, but it doesn’t detract from mine. Why did these people do this? Because they can. Why were they able to? Because less-than-scrupulous lenders (and yes, sometimes builders, too) not only allowed them to, but actively encouraged them to do so.

In law enforcement, we have a concept of entrapment. Maybe we need something similar in commerce.

Conde:
Of course there is at least some caveat emptor applicable in the process, but just because people tend to take advantage in the marketplace doesn’t mean that they should get away with it.

That’s precisely my point. And let’s not forget that thanks to the corporate veil, the lending companies may go bankrupt, but a lot of the people that wrote and approved the loans made out like fat rats, and got the hell out of dodge before the crap hit the fan. (Jeez, could I have thrown any more clichés into that sentence? Sorry ’bout that…)

Kat: Many many people holding subprime loans are middle income folks who have champagne tastes on their microbrew beer budget.

Or middle-income folks who are members of minority racial groups. At least, according to the Wall Street Journal, which ran an article on May 30 of which the money quote is:

Minority-dominated communities attracted more than their fair share of subprime loans, which carry higher interest rates than traditional mortgages. A 2006 study by the Center for Responsible Lending found that African-Americans were between 6% and 29% more likely to get higher-rate loans than white borrowers with the same credit quality.

Sometimes it really is the lenders’ fault.

…they knew that the moneylending tree was green and it was very easy for homebuyers to overextend. As long as they got their money, it didn’t matter. So, yeah, I blame the borrowers.

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Gee, and all those banks who saw $!$!$! on those “interest only” scams bear no fault for extending credit to people who were obviously overextended?
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I guess there’s no such thing as irresponsible lending???

I think the mortgage companies are getting what they deserve. They were irresponsible, and now they are out of business. And financial illiteracy is not an excuse for being irresponsible. Subprime often is a help to people who had credit issues in the past, but have figured out how to live on a budget and needed to get in a house. The unscrupulous lenders are paying dearly for their greed, and the dummies who bought more house than they could really afford are getting their fair share, too.

The reality of the situation is that income tax and regulated inflation by the fed encourages this sort of behavior. When you are punished for making money and saving money is punitive due to inflation, you’ve got to invest to be able to support yourself in retirement. And houses are a way to do that.

Get rid of the fed. Get back to a hard money system. Get rid of the income tax. This will encourage savings, and will keep people from stretching their credit.

Oh yeah, and the government needs to drastically cut spending.

All those things happen, and we’ll stop having these ridiculous bubbles.