Government-backed loan guarantees without oversight enabled predatory lending

Evidence

Government-backed guarantees of debts with scant oversight provided fertile ground for reckless risk taking. In the subprime lending crisis, exploitative and predatory lenders sold, with trivial credit documentation, homes that borrowers could not afford (Duca, 2013). The sales pitch transformed unaffordable dwellings into seemingly affordable ones. With scanty down payments and initially low interest, these mortgages seemed to be within the means of unqualified borrowers. These deceptively cheap mortgages quickly changed into increasingly costly variable-rate ones. The unwitting borrowers were led to believe that they would be able to raise money to cover their increased mortgage payments from the growing value of their homes. — Albert Bandura, Moral Disengagement, 1487

Categorization

• XREF: Connects to broader literature on moral hazard in government-insured risk, and to the reader’s earlier curation on institutions and trust from law/economic sources. — connects to: Blaming borrowers’ financial ignorance obscures the structural logic of sub-prime lending — Max Haiven, Cultures of Financialization, 528; The ideal entrepreneurial-agent construct erases the very concept of predatory lending — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 347; Fannie and Freddie did not cause the subprime lending explosion — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 878 (+2 more)