Some years back, it was common to hear accusations that it was too hard for low-income Americans to get loans to buy houses. There were even accusations by civil rights groups that home loans were regularly being denied based on race.
Over time, lending standards got looser. Down payments often were not required. People with poor credit got “subprime” loans at adjustable rates.
Under pressure from the federal government, government-sponsored Fannie Mae and Freddie Mac bought up massive numbers of risky home loans from the banks that had originally lent the money.
Soon, however, adjustable-rate mortgages started “adjusting” upward, putting the monthly payments out of reach for many people. As a result, over the past few years there have been record numbers of home foreclosures, leaving the foreclosed buyers in worse condition than if they had never been given a loan they couldn’t afford in the first place. The housing collapse was one of the major causes of the recession and of our current high unemployment, which rose in May to 9.1 percent.
But once all the foreclosures started hitting, some of the same groups that had accused lenders of denying loans to the poor began accusing lenders of giving too many loans to people with weak credit. They said borrowers had been tricked into taking loans with unfavorable terms.