The city of Memphis is no stranger to the subprime mortgage issues. This past December, the city of Memphis filed a lawsuit against a main contributor to the subprime mortgage problems, Wells-Fargo. In 2008 and 2009, Wells Fargo was the originator of 231 loans that went into foreclosure. An article featured in the Commercial Appeal delves into the issue and Mayor A.C. Wharton’s attempt to bring some relief to the unfortunate Memphians subjected to foreclosure (http://www.commercialappeal.com/news/2009/dec/30/memphis-shelby-county-sue-wells-fargo-lending-prac/).
A subprime loan is generally described as a loan given to a high-risk client, which could mean a bad credit rating, limited credit history, or low net-worth (in terms of assets). In this case, subprime mortgages were loaned to many people who could not afford the long-term rates. Lenders, such as Wells Fargo, saw the opportunity to give out loans to the many people who were turned away from the more traditional prime loans, given from a bank, typically.
According to the article in the Commercial Appeal, over 23,000 homes have been foreclosed on in Memphis since 2005, most of which were purchased with the help of subprime mortgages. A study in 2008 by Professor Phillip Kolbe shows that Memphis had a “larger than normal percentage of subprime mortgages,” which will cause a more severe backlash of foreclosures in the next several years (http://www.entrepreneur.com/tradejournals/article/179031795.html). A solution to the subprime mortgage issues in Memphis will certainly be no easy task.
I really do not believe Memphis should file lawsuits on Wells Fargo and other contributors of subprime loans. It is not the contributors fault that the people with the mortgage can not afford to pay it. If subprime loans were simply erased, then people such as ourselves, with little to no credit, would not be able to qualify for a loan. I believe the subprime loans should have some kind of an emergency stoppage on the mortgage payments in cases such as layoffs or illness. I think as Tyler mentioned, the solution to this problem is not an easy task. I do feel that subprime loans are neccessary. I believe there are to many aspects causing foreclosers to just point out subprime loans as being the cause of foreclosers. Therefore, I do not feel Subprime lenders should have lawsuits filed on them.
ReplyDeleteWhile I agree that the solution to this problem will not be an easy task. I can not say that filing lawsuits on Wells Fargo and other lending agencies is a completely horrible idea. I understand that the failure of the loans is not completely the fault of either the lender or the person with the mortgage, and that larger economic factors caused much of the recent crash in the banking industry, the banks still made scores of irresponsible decisions. Memphis banks in particular acted irresponsibly, as the city had one of the highest rates of foreclosure during the housing crisis. I believe that these people should be forced to face the consequences of their irresponsible actions, but at the same time I must also give credence to the fact that they did lose large sums of money in the crash itself. This is easily a tenuous situation, but ultimately, I believe that the banks are responsible in large part for allowing so many questionable loans to pass through their hands into the secondary market. The shortsightedness displayed by these agencies makes it difficult for me to feel overly compassionate for them.
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