What is subprime lending?
It’s the practice of making loans to borrowers who do not qualify for the best market interest rates because of their deficient credit history.
During the recent housing boom, a lot of subprime lenders emerged to accommodate the demand for everyone’s desire to get in on the property investment action. Even people with bad credit wanted a piece of the action, hence why the demand for subprime lending rocketed like James Bond’s erection.
Subpime lenders, like all lenders, have a job to do, and that is to lend money for profit. It doesn’t get anymore complicated than that. All lenders have a limit; they won’t lend to people that don’t meet a certain criteria. Subprime lenders have a much more forgiving limit, hence why people with bad credit flock to them. Remember, subprime lending isn’t just risky for the borrower; it’s the lender that has its money on the line. They don’t want to lose their money just as much as the next guy.
Why Do Subprime Lenders Get Blamed For Serving Their Purpose?
So, why the hell are subprime lending companies being accused of predatory lending practices such as deliberately lending to borrowers who could never meet the terms of their loans, thus leading to default, seizure of collateral, and foreclosure? The lenders just stuck to their limit, as ridiculous as it may have been. But that’s their call, and they didn’t physically force anyone to take them up on their offer. Agreed? Agreed. Did these borrowers have a gun pointing at their head while being dragged into these deals?
I’ve been vocal about the issue of subprime lending for some time now, and in many cases, my opinion hasn’t exactly been received gracefully. Personally, I’m not entirely sure why the lenders are getting all the heat from both the media and borrowers. Surely the borrowers should be taking responsibility for their own actions? They are the one’s that used a subprime lender- so what did they expect- an easy ride with low rates and a side helping of freshly baked rhubarb pie? Get real.
Why do people go to subprime mortgage lenders?
Because they have bad credit, but want to buy a house.
Are the borrowers bad credit rating a secret?
No, why else would they be going to a fucking “subprime lender”.
What’s the penalty of using a subprime lender?
Primarily, high interest rates.
Are the risks involved with subprime borrowing a secret?
Fuck no, you meatball, that’s why they’re called “subprime lenders”
Are subprime lenders there to baby-sit adults with their finances?
No. They’re their to provide a loan
So why are subprime lenders getting the blame and not the borrowers?
The entire issue really confuses me. Why aren’t the borrowers blamed, seriously? All i’m reading in the papers is how the poor subprime borrowers got conned into deals. News flash, it was the borrower that signed on the dotted line and agreed to the deal. Why do the lenders have to take responsibility for other peoples incompetence? If someone can’t afford a loan, they shouldn’t get one, simple as that. If the borrower wasn’t aware of the consequences of taking that loan, that’s their own fault. I could probably get approval for an expensive, flashy sports car on finance. Could I afford it? Fuck no. So would I do it just for the sake of cruising in a pimp wagon? No.
The fact is, a lot of people got so hyped up about the property broom they started to see pound symbols in their eyes, consequently wanted a piece of the action in order to make a quick buck. And that’s the sore truth.
I found this cartoon sketch in the The Daily Telegraph. It’s not that humourous, but the point is pretty real…
Don’t blame the lenders; blame the borrower’s greed…
The Bottom line
I don’t think I’m being overly harsh or out of line. I just think some times you need to take responsibility for your own actions. It’s like when I had to evict my tenant because she hadn’t paid rent for 2 months, consequently costing me £1.5k. Was I wrong for evicting her? Hell no, I wasn’t. She agreed to live under my roof and take tenancy. She signed the contract. Did she expect to live in my house for free while I paid the mortgage (I actually think she did it, to be honest)?
It’s the same principle as far as I’m concerned. You can argue all day that the lender should have known that the borrower couldn’t afford the payments. But is that the real issue? Or is the real issue that the borrower agreed to make the payments and the borrower met the minimum requirements of the lender?
Disclaimer: I'm just a landlord blogger; I'm 100% not qualified to give legal or financial advice. I'm a doofus. Any information I share is my unqualified opinion, and should never be construed as professional legal or financial advice. You should definitely get advice from a qualified professional for any legal or financial matters. For more information, please read my full disclaimer.