How much responsibility should the lender bear for insuring the consumer can afford his mortgage?

In early 2007 we started hearing about the meltdown in the subprime mortgage market. Essentially, subprime lending involved loaning money to people to purchase a house who couldn’t qualify for a regular mortgage, usually because of poor credit. From the consumers’ standpoint, subprime lending allowed them to purchase homes when they would not have otherwise qualified. From the lenders’ standpoint, they were able to charge higher interest rates and other costs on these loans because they were taking on additional risk. The problem arose when the borrowers were unable to make the payments and the homes went into foreclosure.

1. How much responsibility should the lender bear for insuring the consumer can afford his mortgage? 2. How much responsibility should the consumer bear for ensuring he can afford his mortgage? 3. Should lenders be allowed to loan more than the value of the borrowers’ home? 4. Does the government have an interest in regulating the size of home mortgages?

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