The bank won't lend you more money than you can afford (a lot less typically)
I'm totally against giving aid to people or corporations because they spend themselves into massive debt.
One thing we are forgetting in our discussion here is the banks really aren't the issue. In fact, it's the mortgage lender companies and the brokers that work for them that are largely the cause of the problems. Brokers have a conflict of interest in that they get commission on every loan closed. There is no incentive for them to realistically look at a family's financial situation, since they won't get money if a family is denied. There sole purpose is to pass all the information on to the underwriter, which is typically a mortgage lender. The mortgage lender usually will then sell the loan itself to a bank, along with hundreds of other loans. Banks make very little off of each loan after paying the lenders, but they have the capital to support a lot of loans and so make their money through volume. Each loan is documented, but the lenders will frequently spin the situations into the best possible light. Also, even though one can expect a certain percentage of loans will go into foreclosure, there are typically enough other loans that are in good standing to compensate for the foreclosures.
Occasionally, you have operations like ACC Capital Holdings that finance these loans and hold on to them rather than selling them off to banks. Generally these types of operations hire their own brokers directly (in the other situation above, brokers are independently contracted). ACCCH was recently taken to court by the attorney generals of 49 of the 50 states in a class action lawsuit for predatory lending practices. The case was settled. ACCCH operated knowing that a great number of their loans would go into foreclosure, but they charged such high fees, used high-pressure tactics, employed bait-and-switch methods, snuck in hidden charges, and falsified loan applications so that they would make a large amount of profit anyway. So we can't just go blaming those who got foreclosed. They were taken advantage of by an industry that frequently employed both predatory and illegal tactics.
Oh, and who happens to be the owner of ACCCH? Roland Arnall. Mr. leader of the GOP fundraisers for President Bush's reelection campaign. Oh, and Bush appointed him ambassador to the Netherlands. I wonder my Michelle Makin doesn't mention this little tidbit.
So really, no one has clean hands here. The families shouldn't have been so desparate, naive, and in some cases downright stupid. But the lenders should not have been predatory and lawbreaking. The bailout is dumb, but the fault of all this belongs not just on the shoulders of those who lost their homes.
