Posts Tagged ‘Predatory Lending’
According to the Washington Post, The Obama Administration is encouraging banks and creditors to extend housing loans to those with weak credit. President Obama is asking Lenders to use more subjective criteria in giving loans to individuals who may fall into the subprime lending category. The President believes that this will help lower income individuals participate in the recently surging housing market, currently only enjoyed by those who can obtain credit, i.e. mid to upper income individuals.
However, the results of this action may mirror what caused the credit crisis of 2008 to occur. In 2008, after many years of lending money to home buyers with weak credit (and subsequently selling those repackaged ‘bad’ loans), the housing bubble burst when individuals could not pay those loans back. By taking on risky loans, the economy would take on an increased amount of risk, that many argue the United States cannot afford to take given the current state of the economy.
Banks are hesitant to start issuing loans, because in the past they have faced legal or financial penalties for lending to risky individuals who later default. The Obama administration is urging the Justice Department to reassure banks that there will be no prosecution or “recrimination” for these proposed lending practices. And if there is less governmental oversight, will the United States see a rise in predatory lending practices by private lenders, which would undermine the benefits of the entire proposal?
Click here to read the full Washington Post Article.