Turning a blind eye to predatory borrowing

George Will:

LEWIS Carroll, call your office. Or, better still, the author of "Alice's Adventures in Wonderland" should call Washington - where the government's determination to solve the housing "crisis" produced this lead paragraph in a recent New York Times story: "Federal agencies are intensifying a criminal investigation of the mortgage industry and focusing on whether some lenders turned a blind eye to inflated income figures provided by borrowers."

Perhaps some lenders who were lied to were culpably indifferent to dishonesty because they planned to sell to others mortgages that they knew were risky. But the victimization narrative that's turning housing-market turbulenceinto a morality tale involves borrowers victimized by "predatory" lenders.

The narrative remains murky because there is scant information about the percentage of currently distressed borrowers who were untruthful about their incomes or net worth when talking to lenders.

One symptom of the "crisis" is that housing prices have fallen. How far is unclear. Estimates range from 3 percent to 13 percent. Questions arise.

Do young couples struggling to purchase their first homes concur with the sudden consensus that the decline in prices is a national misfortune?

The Economist reports: "Monthly payments on a typical house with a 30- year mortgage and 20 percent downpayment were 18.5 percent of the median family's income in February, down from almost 26 percent at the peak - and close to the historical average."

By that measure of housing affordability, the "crisis" is welcome.

...

Here is an idea. Perhaps the prices have dropped because of decreased demand, i.e. the market may be overbuilt in some areas.

What has always bugged me about the so called predatory lending argument is that it made no sense for lenders to loan money to people who could not pay their mortgage. The last thing a lender wants is to wind up owning a house that is worth less than he loaned on the purchase. What that means is the lender is losing money.

In fact most of the billion dollar write offs on Wall Street have been the results of mortgages that were not performing and real estate owned that is worth less than the loan. Business can be predatory, but self destruction is rarely part of the plan.