Discussion on this subject was being held previously here: https://www.pakwheels.com/forumreply_az_TopicID!90755~ForumID!14~page!3~pw.html
Toofan, I have created this topic to further discuss your convoluted views on credit markets in the US.
Toofan wrote:
No I will blame the borrower, Why..Coz they were first in the queue when banks gave
Your understanding of how borrowing works in the US is not only inaccurate, it is downright hilarious.
Blame the borrower.
Let me explain the process of lending in light of borrowing money for home mortgage in the US and other developed economies. A person wishing to obtain a home loan submits an application to a financial institution that may or may not be a bank. The application contains information that will be used by the lender to evaluate credit risk. Lenders use borrower’s credit rating, the FICO score, obtained from three major credit bureaus to evaluate credit risk. These credit bureaus (TransUnion, Equifax and Experian) are independent private companies that collect credit data on all US residents that have ever utilized consumer credit. The lender then decides whether the borrower is worth lending money to.
Nowhere in this process the burden of proving a borrower’s credit risk falls upon the borrower other than submitting an application with correct information to start the process. It is lenders job to perform due diligence before approving the loan.
Now, let’s look at the subprime lending. Subprime borrowers, as you have already looked it up, are people with credit rating (FICO score) that is less than ideal. In this case, lenders require the borrower to buy insurance to secure their loan, in case the borrower ends up defaulting. Here is where AIG comes into the picture. AIG insured millions of these mortgages that eventually ended up in default. Failure of AIG to payout would have resulted in a catastrophe. That is why AIG had to be rescued.
Subprime lending is NOT a normal lending practice. It became popular when housing inventory in the US reached epic proportions and greedy lenders saw an opportunity to expand the traditional pool of borrowers by offering home loans to less than worthy.
Blaming the borrower rather than lenders is equivalent to blaming a victim of a mugging by saying that it is their fault that they were there.
A lender is required to perform their own credit risk evaluation, a borrower is not.
Now, keep all this in mind and tell me if you understand why tax payers are pissed at this bailout of $700 billion. Government is rewarding greediness of the lenders; the very lenders who failed to perform proper credit risk assessment and knowingly lent money to borrowers they knew quite well would never be able to repay. Their lack of due diligence is what is at the heart of this global meltdown.
Toofan, I will appreciate if you didn’t cut and paste articles from other websites to continue this discussion. It would be nice if you understood the subject matter yourself and then continue the discussion, in your own words. Thank you.