Let's start off the new year by revisiting a headline from the old year. The crisis in the home lending market - especially for sub-prime loans to marginal borrowers - hit the fan in 2007 and will cause an additional financial crunch this year. My concern now, as it has been all along, is that trustworthy borrowers who make their payments on time and who follow the rules may well ultimately pay for this manufactured crisis.
What happened is this: The economy was perking along just fine and competition among banks became intense. That competition prompted many lenders to turn a blind eye on customers who had a questionable credit history and an equally questionable ability to repay their home loan.
But the loan officers were under increasing pressure and so the lax policy prevailed. Then speculators entered the market to buy homes, pay only the interest on those properties and then wait for the housing market to increase the home's value. But the housing market slowed, the values actually decreased and those speculators were left with costly properties valued less than what they owed the bank.
When the crisis began to surface, home foreclosures hit record levels. Late payments hit record levels. And the federal government started to become increasingly concerned that the banks and the big boys who buy their loans were going to go under.
A report out of California last week showed that almost 70 percent of the problem loans there were to speculators. Well, tough. Those greedy souls were in the game to make money and they bet on the wrong horse. I don't want one cent of my tax dollar to help them out of their money pinch.
For those questionable borrowers, the lenders are the ones who should suffer the loss. The banks and brokers were so competitive that they knew these loans were marginal at best. I don't want anyone to lose their home but I'm also unwilling to bail out the banks who knew these loans were on the edge in the first place.
Here's how ridiculous the process had become. A new federal rule will go into effect this year that would make some changes for banks who loan money to customers to buy a home. One of those changes is that banks would now be required to have proof of the borrowers' income before making the loan. Well duh! Do you mean to tell me that these banks were providing questionable loans and not even requiring the borrower to provide proof of income? I have no sympathy for these lenders.
Maybe the problem is we have too many banks. Maybe that increased competition promotes loose practices that can harm the entire economy.
As is often the case, the source of the problem in the housing market is greed. Greed among bankers and greed among speculators. Our tax money should never be used to reward greed or ignorance.