Friday, August 31, 2007

Are Subprime Loans Bad For Homeowners and Homeownership?

Wharton Professor Jack Guttentag tackles a study stating that Subprime loans have a net negative impact on homeownership. Jack feels otherwise and is probably right. Interesting article that has implications for future subprime lending.

I guess my only disagreement (and perhaps its because I am not fully understanding his statement) is that subprime lending represents a socially useful purpose. I don't like this "socially useful purpose" because it gets in the way of good lending practices and opens the door to the government to prop up the failures of certain lenders out of "social concerns". I don't believe the government should you my tax dollars to bail out somebody who made poor decisions - whether it be a family or an institution. This impedes the free market and leads to more risky loans by institutions who believe they can offer better loan terms and not bear the risk.....the government and hence you and I the taxpayer will bear them. This is good business, but bad for the economy.

Scott Dauenhauer, CFP, MSFP, AIF