If Sub-prime Lending Is So Risky, Why Do Banks Encourage It?
From what I understand, the subprime market is filled with predatory lending practices that prey on uninformed home buyers who are bilked into paying sky-high adjustable interests rates- but if most of them aren’t even able to repay their loans in the first place, a fact in which most lenders are well aware, in what way is this financial sound for the banks? Who exactly benefits from sub-prime lending? Also, this recent housing bubble was largely a result of imprudent lending practices in the sub prime that engendered an industry wide collapse after home owners found themselves in tight financial situations. But if these mortgage backed securities are entailed with so much risk, why can’t we simply get rid of subprime lending?
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