Financial incentives are to close as many loans as possible as fast as possible regard of risk. Whether the borrower can repay the loan is really not of their financial concern.The result is "artificially low teaser payments" that hook borrowers whose credit is rocky; after a while those payments stop teasing and realty sets in when interest rates make mortgage payments impossible for those "sub-prime" borrowers.
An economist with the Mortgage Bankers Association told NPR that regulations are not needed because mortgage defaults do not threaten the economy. He argued that investors are in the "learning phase," which should be allowed to run its course.
My question would be: what can this learning phase teach us that centuries of observation of human behavior have not taught us? There is nothing novel about the mortgage broker equation: it involves one group of people marketing their product at artificial rates in order to take advantage of weaker, at-risk groups. Taking advantage of the weaker parts of the herd has been the standard procedure for human beings from day one. Predatory lending is no different than other predatory behavior.
We do not need to let this learning phase run its course. We already know what is happening and what is going to continue to happen until a force stronger than money forces mortgage brokers to assume responsibility for the long-term well-being of borrowers. This is not a new problem; it is ages old. While the Mortgage Bankers Association may feel perfectly fine watching borrowers go over the default cliff to their ruin, the rest of us should not be, and we should demand that Congress formulate regulations to stop predatory lending and to reign in predatory entrepreneurs.