Republicans like to say the Community Reinvestment Act caused all the trouble in the sub-prime mortgage market, as “those people” had to be given mortgages they were never going to be able to pay off. That’s bullshit, but it’s still the kind of thing they like to repeat ad nauseum under their current sole political philosophy, which can be summed up as, “Tell big enough lies often enough and maybe people will believe you.”
I hate to pile on in their hour of darkness—and it doesn’t get much darker than your party chairman feeling he has to apologize to Rush Limbaugh—but it occurred to me over the weekend that I have a sub-prime mortgage. It’s true. Me, Mister Middle-Aged White Guy, didn’t have 20% down when I bought my house three years ago. I was able to come up with 10%, and my credit score was over 700; a fifteen-year second trust loan had to be taken out, at a considerably higher interest rate.
Well, the fifteen-year loan was paid off last week, in almost exactly three years. You are not bailing anyone out on my account, including me. I suspect I am not alone here. There are as many reasons for people to need sub-prime loans as there are sub-prime loans. Some of them should never have been made; that’s on the lenders. The government never told them they had to lend money to people who couldn’t pay it back.
Sub-prime mortgages became a crisis because banks were lined up to issue non-documented loans to people who never should have been considered. Pitching a $400,000 mortgage to a chambermaid making $14,000 a year hardly qualifies as sound business practice. Nor does buying securities consisting of bundles of such loans without performing the due diligence necessary to make sure those were performing loans.
I’m old enough to remember when the lenders kept loan defaults from becoming a problem by not lending unless they were damn sure you could pay it back. Lenders stopped doing that, and started believing in their own Ponzi scheme. That’s where the problem was. Not with the overwhelming majority of borrowers.
And sure as hell not with me. So let’s be careful who we tar with the sub-prime brush.