Over at the Scratching Post there is a post, talking about liar loans and how it is the responsibility of the borrower not to lie to get one. Maybe. In my book the banker is supposed to safeguard depositors funds by not making loans to people who won't be able to pay them back. We place our money in the bank, with the expectation of it being there when we need it. A banker's first responsibility is to safeguard other people's money, not throw it to the four winds.
People are fallible. Offer a nice house to people and most of them will take it, even if they cannot afford it. The temptation is just too much. And that's what liar's loans (mortgages with no proof of income) are, pure temptation. I like to think that I could resist such a temptation, but let's be real. Most people, myself included, will yield to a strong enough temptation.
Why did the banks make sub prime and liar's loans and alt A loans? Because it was risk free for the bank. The banks sold these dodgy mortgages to the bigger suckers in the market, especially to Fannie and Freddie, but later on even to Wall St brokerage houses. The current Great Depression II happened when the suckers wised up or went broke (Fannie and Freddy), leaving the banks stuck with junk.
We need banking reform to prevent this from happening again.
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