Investment Musings

It feels great when your blog post is a source of inspiration for others to start a new blog. And that’s precisely what happened with this post Black Money Saves Our Financial Sector.

Author: Austin Comments: 3 comments Date: 19 Apr 2008 More: Read more
Categories: Blogs Tags: , , , , , ,

Black Money Saves Our Financial Sector

Traditionally, US mortgage lenders checked the creditworthiness of borrowers and then provided 80% of the home loan amount; the remaining 20% had to be paid by the borrower. So, even if the price of the house dropped it would still be higher than the bank’s loan thus giving an incentive to the borrower to repay it. However, in the recent years in order to increase lending volumes and profits the US banks followed a relaxed approach (many lenders even stopped checking the creditworthiness of the borrowes) by giving loans that were EQUAL to the entire value of the house, so the borrowers had no personal stake at all. Ultimately, this led to loans that were given to people who did not have any documented income, job or assets.