Question

The banks gave out Subprime Variable Home Loans to borrowers that were very questionable at their ability to support the loans. The homeowners took loans that they were not able to afford as the variable rate loan increased, because they were told that houses always appreciated in value. Even if they couldn’t afford the mortgage after the “balloon payment” or the “teaser rate” expired, they would have built up equity in the house, and make a profit. Unfortunately, this didn’t happen in 2008, and many homeowners who were “underwater” (their house was worth less than their mortgage), just left their properties. Discuss who you think was responsible for these loan defaults: the bank, the homeowner, or both?

Answer 1

Explanation:

Both home owners and bank are responsible for the loan defaults as upon knowing and assessing the capacity of repayment of loan by the bank, bank should have denied the borrowers giving loan. There is standard procedure for lending a loan to borrower who has better capacity of repayment and bank should have to rely upon that assessment. In case of borrower they knew that they don’t had the capacity to repay the loan and this was truly a gamble in which they don’t had any real chances to make profit and would left out being bankrupt. This such gamble would have brought only problem for this borrowers only.