I hate it when Ted Frank is right, but he nailed it this time.  At Overlawyered, he posts about the politicians new whipping boy, “predatory lenders.”  It’s a good choice for candidates, since there are a lot more people hurt by the mortgage crisis than made a living selling them, and it’s always best for candidates to back the crowd with the bigger numbers.

But this debate has been outcome oriented from the start.  There is no doubt that people are suffering as a result of teaser rates increasing and home values dropping.  Unfortunately, this toxic combination doesn’t tell us anything about fault for the problem.  Lenders didn’t go to people’s homes and force them to take out mortgages for 110% of appraised value.  Lenders didn’t force subprime borrowers, who otherwise couldn’t get a loan if their lives depended on it, to take loans that they couldn’t afford to pay. 

We’ve been through this before.  When you bite off more than you can chew, it’s not someone else’s fault.  We feel terrible for people who are losing their homes, and there are no doubt people who are sympathetic in this mess.  But for those who bought houses when they had no money for a downpayment, this was a boon.  How else can you buy a house when you don’t have a dime in the bank?  How else can you pull big bucks out of a house to pay for vacations and cars?   Isn’t it every American’s right to live free and drive a Mercedes?

So it all came crashing down one day.  Hey, they were more than happy to take that bet when home values were increasing, and it looked like the house they purchased for zero down was a cash machine.  And when they refinanced to pull the ever-increasing equity out of their house and spend it on . . . something, they weren’t complaining then.

So what did these lenders do that makes them “predatory”?  They offered subprime loans to subprime borrowers?  They gave people a choice, and people took them up on it.  Now, borrowers cry that they didn’t know, they didn’t understand.  Perhaps not, though I frankly doubt it.  The plan was to keep refinancing every time the loan converted and game the system through the perpetual use of teaser rates.  The gravy train would never end.

And didn’t their lawyers tell them what they were buying into?  In New York, the common practice is for borrowers to use a lawyer during a mortgage transaction.  But it seems that a lot of these borrowers didn’t want to spend the money on a lawyer, and flew solo.  And who’s choice was that?

Did the lenders offer products that were ill-suited for many borrowers?  Sure.  In fact, some of these products with ballooning rates would have choked any horse when the bill came.  But if the crunch never came, these same borrowers would have enjoyed a free ride forever.  But it did come, and they got caught in the squeeze.  No one guaranteed them a right to make bad choices and never suffer the consequences. 

So while we may be sympathetic toward these borrowers, let’s not vilify the wrong party and let’s not shift the burden of these bad choices to the people who saved their money, mortgaged carefully and thoughtfully, and have the ability to weather the storm.  Fiscal prudence isn’t a crime either, and it’s time we stopped rewarding foolish risk by laying blame where it doesn’t belong.  America may be the land of opportunity, but there’s no guarantee that bad choices have no consequences.