Los Angeles Bankruptcy Blog

From today’s newspaper:

WASHINGTON — Congress appears increasingly likely to pursue new protections for consumers seeking risky home loans, as defaults surge among borrowers and concerns rise over alleged abuses in the sector.

Top lawmakers in the House and Senate signaled their intention to tackle the issue, underscoring the more-activist sentiment prevailing on Capitol Hill since the Democrats swept to power in November.

Really, what this means is that when they changed the bankruptcy laws in 10/2005, they thought it was consumer abuse. That people were filing bankruptcy just to avoid responsibility. That was a false premise, and they solved a problem that wasn’t there.

What we’re finding out now is, gee whiz, the creditors were lending to people that really had no business having credit, or that loan, or that house. Risky loans.. why? To make big bucks on interest rates. The lure was just too great. But if people file bankruptcy as a result of stupid lending practices, don’t penalize the lenders. No, make it harder for people to file. That’s just wrong.

And now what we’re seeing is that subprime lenders like New Century are stopping all lending, and realizing that foreclosures are sky high based on the dumb loans they gave to people — hello! people should not be spending 90% of their takehome pay on 80-20 mortgage financing with nothing down! — are coming back to haunt them.

So now it’s all about “stop us before we lend again!” As if they’re some out of control psychopath that can’t stop lending to people who have bad credit or no income.

Bottom line: The creditors are just as guilty of bad mistakes as the consumers. No, worse than that. Most consumers don’t maximize their spending and borrowing and plan a bankruptcy. However, most lenders maximize their interest rates, number of accounts and risky clients in the hopes of getting the most profit. Nothing wrong with profit, but taking huge and stupid risks with the expectation that they’ll be bailed out is exactly what the credit card companies (wrongly) accused debtors of doing before the bankruptcy law changes in 2005.