• This is a political forum that is non-biased/non-partisan and treats every person's position on topics equally. This debate forum is not aligned to any political party. In today's politics, many ideas are split between and even within all the political parties. Often we find ourselves agreeing on one platform but some topics break our mold. We are here to discuss them in a civil political debate. If this is your first visit to our political forums, be sure to check out the RULES. Registering for debate politics is necessary before posting. Register today to participate - it's free!

Who to blame: the lender or the borrower?

Who deserves the blame for a loan default, the borrower or the lender?

  • The borrower, they shouldn't be taking out a loan that they can't pay back

    Votes: 15 55.6%

  • The lender, they shouldn't be making loans that they suspect will default

    Votes: 11 40.7%

  • The government for guaranteeing the loan

    Votes: 7 25.9%

  • The government for failing to adequately regulate the lending process

    Votes: 7 25.9%

  • All of the above

    Votes: 11 40.7%
  • Total voters
    27
Rhapsody1447

Rhapsody1447

Skeptical Optimist
DP Veteran
Joined
Aug 25, 2006
Messages
1,510
Reaction score
707
Gender
Male
Political Leaning
Very Conservative
If a person defaults on a loan, who deserves the blame the lender or the borrower? As credit eases and lending standards go down, more and more loans are made to people with riskier credit histories. A lot of times this can lead to predatory lending practices (e.g. adjustable rate mortgages that reset at a much higher interest rate, banks pushing loans on people who can't afford them), however sometimes it is necessary for the government to ease credit conditions in order to help spur economic growth (e.g. by making it easier for people to buy a house or start a new business).

So if I take out a loan and fail to repay it, is it my fault or the bank's?
 
Rhapsody1447 said:
If a person defaults on a loan, who deserves the blame the lender or the borrower? As credit eases and lending standards go down, more and more loans are made to people with riskier credit histories. A lot of times this can lead to predatory lending practices (e.g. adjustable rate mortgages that reset at a much higher interest rate, banks pushing loans on people who can't afford them), however sometimes it is necessary for the government to ease credit conditions in order to help spur economic growth (e.g. by making it easier for people to buy a house or start a new business).

So if I take out a loan and fail to repay it, is it my fault or the bank's?
Click to expand...

It depends. Did you lie on your application? Did you say you made more money than you made? Worked where you said you worked? For the length of time you said you worked there? Earned what you said you earned? Did you lie about what you oiwed on credit cards? If you didn't lie on your application, in my opinion, its not your fault.

Mortgage brokers lied. They failed to disclose a whole bunch of stuff to borrowers. Like: zero interest for a year, then 12% after that for the next two, then 14% after that; Like 1% interest for two years, then a balloon payment due. What they didn't explain was that if your home didn't appraise, you couldn't get refinanced in order to pay off that balloon, so you'd lose your home. Most people aren't financially savvy. These are the people who trusted mortgage brokers. Mortgage brokers knew their stuff inside-out; worked on commission; sold anybody they could stupid mortgage products that weren't at all in their best interests, and quickly moved on. Jerks.
 
I pretty everyone to some degree, though there are exceptions to everything. The borrower deserves blame for taking out a loan they couldn't pay off. The lender deserves some blame for giving a loan to someone with a risky credit history. And the government gets some blame for not regulating things better.

Though in a lot of the cases in the last few years, it's hard to blame anyone but the circumstances. If someone had a good credit history and was paying faithfully on the loan, then lost their job and defaulted before they got a new one, it's hard to lay blame at anyone's feet in particular.
 
MaggieD said:
It depends. Did you lie on your application? Did you say you made more money than you made? Worked where you said you worked? For the length of time you said you worked there? Earned what you said you earned? Did you lie about what you oiwed on credit cards? If you didn't lie on your application, in my opinion, its not your fault.
Click to expand...

I think we can all agree that if you did any of the above you are obviously the guilty party. But, there is a gray area outside of the two extreme examples you used. What if I took out a loan and simply couldn't repay it? Typically, this would occur as a result of me making certain reasonable assumptions about my future income that didn't materialize. Who is to blame if I simply fail to meet my debt obligations despite being honest about my credit history/income and knowing full well the terms of my loan?

Mortgage brokers lied. They failed to disclose a whole bunch of stuff to borrowers. Like: zero interest for a year, then 12% after that for the next two, then 14% after that; Like 1% interest for two years, then a balloon payment due. What they didn't explain was that if your home didn't appraise, you couldn't get refinanced in order to pay off that balloon, so you'd lose your home. Most people aren't financially savvy. These are the people who trusted mortgage brokers. Mortgage brokers knew their stuff inside-out; worked on commission; sold anybody they could stupid mortgage products that weren't at all in their best interests, and quickly moved on. Jerks.
Click to expand...

While I agree with you that these predatory lending practices were rampant and completely unethical. However, the terms of a loan agreement were fully disclosed under law as they would have to be present in the loan document the borrower signed in order to be a legal contract. It's true these lender assholes didn't explain the terms properly and failed to mention key elements (e.g. balloon payments, adjustable interest rates) of the loan in order to manipulate the borrower for the sole purpose of making a commission. However, all terms would have to be disclosed in any contract signed by the customer in order for it to be legally binding.
 
the root cause is the elimination of jobs in pursuit of artificially cheap consumer goods.

the credit crisis is a symptom, not the cause.
 
What kind of loan are we talking about? If it's something routine, like credit card debt, then both parties are to blame. If it's something like a mortgage, then it's mostly the lender's fault. The average consumer doesn't have much experience with how to choose a mortgage; for many people it's a once-in-a-lifetime purchase. The banks don't have that excuse: they live and breathe loans, and they should know better.
 
Rhapsody1447 said:
I think we can all agree that if you did any of the above you are obviously the guilty party. But, there is a gray area outside of the two extreme examples you used. What if I took out a loan and simply couldn't repay it? Typically, this would occur as a result of me making certain reasonable assumptions about my future income that didn't materialize. Who is to blame if I simply fail to meet my debt obligations despite being honest about my credit history/income and knowing full well the terms of my loan?
Click to expand...

If you simply couldn't repay your loan, you're at fault. Look, it's not always black-and-white blame. Say a guy loses his job and can't find one. Well, yeah, it's his fault he falls behind on his mortgage; but is the fault one of irresponsibility? Or bad luck?

While I agree with you that these predatory lending practices were rampant and completely unethical. However, the terms of a loan agreement were fully disclosed under law as they would have to be present in the loan document the borrower signed in order to be a legal contract. It's true these lender assholes didn't explain the terms properly and failed to mention key elements (e.g. balloon payments, adjustable interest rates) of the loan in order to manipulate the borrower for the sole purpose of making a commission. However, all terms would have to be disclosed in any contract signed by the customer in order for it to be legally binding.
Click to expand...

You're right. Borrowers clearly sign disclosure statements. But they don't understand them. I'll tell you that right now. I sat at the closing table with these people. As the attorney began explaining their mortgage to them, their eyes glazed over. Way beyond their expertise. Hard workers. Dependable. Honest. But they don't understand APR, balloon payments, 0% amortization loans...heck, probably many people right here (a more sophisticated group than many) don't understand it either.

Be completely honest. The last time you bought life insurance, did you read the policy? If you say you did, you're lying. ;) Brat! Ha! Health insurance? Ja' read it all before you signed? Of course not. You trusted the person who said, "Sign here." And this is how borrowers got ****ed over.
 
Rhapsody1447 said:
If a person defaults on a loan, who deserves the blame the lender or the borrower? As credit eases and lending standards go down, more and more loans are made to people with riskier credit histories. A lot of times this can lead to predatory lending practices (e.g. adjustable rate mortgages that reset at a much higher interest rate, banks pushing loans on people who can't afford them), however sometimes it is necessary for the government to ease credit conditions in order to help spur economic growth (e.g. by making it easier for people to buy a house or start a new business).

So if I take out a loan and fail to repay it, is it my fault or the bank's?
Click to expand...
Both are responsible for their behavior.

Moreover, their actions are not necessarily the only factors that have contributed to the default. A business that handled itself irresponsibly and had to lay off the person who took out the loan also holds some responsibility as do politicians who decreased regulations on banks.

Everything is interconnected. In such an interdependent society, it is impossible to legitimately blame one person or entity for the many of the problems that exist. Every person or entity is responsible for their/its actions and in turn, the consequences of those actions. Therefore, whatever role a person had in his inability to pay for a loan coexists with the role the bank had in giving him a risky loan and both of these actions coexist with the actions of employers, the government and everyone in-between.
 
MaggieD said:
If you simply couldn't repay your loan, you're at fault. Look, it's not always black-and-white blame. Say a guy loses his job and can't find one. Well, yeah, it's his fault he falls behind on his mortgage; but is the fault one of irresponsibility? Or bad luck?
Click to expand...

I agree. However, despite whether the circumstances were a result of irresponsibility or bad luck I would still place the blame on the borrower. I can't, in good conscience, blame the lender for the borrower's failure to meet his/hers obligations. This by no means makes the person immoral for borrowing money they believed they could pay back (as they would if the person lied like the examples you provided).

You're right. Borrowers clearly sign disclosure statements. But they don't understand them. I'll tell you that right now. I sat at the closing table with these people. As the attorney began explaining their mortgage to them, their eyes glazed over. Way beyond their expertise. Hard workers. Dependable. Honest. But they don't understand APR, balloon payments, 0% amortization loans...heck, probably many people right here (a more sophisticated group than many) don't understand it either.

Be completely honest. The last time you bought life insurance, did you read the policy? If you say you did, you're lying. ;) Brat! Ha! Health insurance? Ja' read it all before you signed? Of course not. You trusted the person who said, "Sign here." And this is how borrowers got ****ed over.
Click to expand...


Of course, you are absolutely correct. The majority of these agreements are skipped over or completely ignored. However, in respect to a loan agreement, I would make sure I 100% understand what my financial obligations are going to be before I sign something. In this case, I would still have to blame the borrower for their apathy in understanding what they were signing. Ultimately, if I sign a legal contract, I am responsible for knowing what I am agreeing to.
 
Rhapsody1447 said:
If a person defaults on a loan, who deserves the blame the lender or the borrower? As credit eases and lending standards go down, more and more loans are made to people with riskier credit histories. A lot of times this can lead to predatory lending practices (e.g. adjustable rate mortgages that reset at a much higher interest rate, banks pushing loans on people who can't afford them), however sometimes it is necessary for the government to ease credit conditions in order to help spur economic growth (e.g. by making it easier for people to buy a house or start a new business).

So if I take out a loan and fail to repay it, is it my fault or the bank's?
Click to expand...

It depends on the situation. Sometimes the answer is neither. There will always be loans out there that won't be repaid due to some exogenous factors. Just like there are always investments that don't pan out.
 
Last edited:
Rhapsody1447 said:
If a person defaults on a loan, who deserves the blame the lender or the borrower? As credit eases and lending standards go down, more and more loans are made to people with riskier credit histories. A lot of times this can lead to predatory lending practices (e.g. adjustable rate mortgages that reset at a much higher interest rate, banks pushing loans on people who can't afford them), however sometimes it is necessary for the government to ease credit conditions in order to help spur economic growth (e.g. by making it easier for people to buy a house or start a new business).

So if I take out a loan and fail to repay it, is it my fault or the bank's?
Click to expand...

It takes two to tango_One is just as much to blame as the other.
 
I don't understand the reasoning here. It seems like the answer with the most votes is it's the fault of the individual for taking out the loan in the first place. Does the bank not bear some responsibility here for giving it to him?
 
1Perry said:
I don't understand the reasoning here. It seems like the answer with the most votes is it's the fault of the individual for taking out the loan in the first place. Does the bank not bear some responsibility here for giving it to him?
Click to expand...

The banks must take some of the blame but I also people need to be more educated on topics like their credit score etc. I belong to a credit union who teach young people to be responsible and won't even touch you until you have established credit, any current delq tradlines or collections and you can forget it. This is the kind of policy banks should embrace!
 
Higgins86 said:
The banks must take some of the blame but I also people need to be more educated on topics like their credit score etc.
Click to expand...

I'm all for removing the secrecy behind it. You should be able to look on the internet and see your score. (for no charge)

I belong to a credit union who teach young people to be responsible and won't even touch you until you have established credit, any current delq tradlines or collections and you can forget it. This is the kind of policy banks should embrace!
Click to expand...

Hmmm, seems most credit unions are more willing to work with a person.
 
Information is freely and easily available to the borrower, though not necessarily through the lender. Because information can be sought out with minimal effort it is as much the fault of the borrower for defaulting as it is the lender for providing a "questionable" loan. I knew what an ARM was before I was out of high school (9 years ago). I knew that a lower interest rate (fixed, not based on variable + prime) was the best option. I knew that maxing out credit cards was bad. I knew that I shouldn't borrow more than I needed (i.e. I didn't need a $45k vehicle, so I didn't get one..even if I might have been able to make the payments...barely). I'm not special, hyper intelligent, born to financially savvy parents, or remarkable in any way.

Most people, if they were willing to put in the effort to protect their own assets, could know as much as is needed to make smart borrowing decisions and avoid default (outside extraneous situations, which are relatively rare).
 
MaggieD said:
It depends. Did you lie on your application? Did you say you made more money than you made? Worked where you said you worked? For the length of time you said you worked there? Earned what you said you earned? Did you lie about what you oiwed on credit cards? If you didn't lie on your application, in my opinion, its not your fault.

Mortgage brokers lied. They failed to disclose a whole bunch of stuff to borrowers. Like: zero interest for a year, then 12% after that for the next two, then 14% after that; Like 1% interest for two years, then a balloon payment due. What they didn't explain was that if your home didn't appraise, you couldn't get refinanced in order to pay off that balloon, so you'd lose your home. Most people aren't financially savvy. These are the people who trusted mortgage brokers. Mortgage brokers knew their stuff inside-out; worked on commission; sold anybody they could stupid mortgage products that weren't at all in their best interests, and quickly moved on. Jerks.
Click to expand...
If there were/are instances where mortgage brokers actually lied, then I would and do agree with you. I purchased homes during that period. I knew full well what an ARM was and knew the terms before I ever signed for any loans (and algthough I came close 1 time was never stupid enough to actually get into an ARM) and anyone that says they didnt know is either or a liar or didnt bother to read the very paperwork they were signing. If they were lied to there should be some fraudulent documents showing every single page they signed. I get it though...it is much more convenient to blame someone else because the homeowner was an idiot. Most people bought those homes figuring...hey...market is booming...I get in now, in 2-3 years we either sell or do a refi based on the projected equity...we can swing this deal.

MOST people were stupid and voluntarily got in over their head. They deserve the blame. Some may well have been lied to. I dont disbelieve you...i just find it really hard to visualize the 'guillible' homeowner that doesnt look at those figures. How do we protect someone like that from themselves?
 
Last edited:
1Perry said:
I'm all for removing the secrecy behind it. You should be able to look on the internet and see your score. (for no charge)



Hmmm, seems most credit unions are more willing to work with a person.
Click to expand...


maybe some credit unions but credit unions I have been a member of have always had tighter policies especially with auto loans and credid cards which is the way it should be. People should not be able to open more tradelines when they have current delq or collections.
 
VanceMack said:
If there were/are instances where mortgage brokers actually lied, then I would and do agree with you. I purchased homes during that period. I knew full well what an ARM was and knew the terms before I ever signed for any loans (and algthough I came close 1 time was never stupid enough to actually get into an ARM) and anyone that says they didnt know is either or a liar or didnt bother to read the very paperwork they were signing. If they were lied to there should be some fraudulent documents showing every single page they signed. I get it though...it is much more convenient to blame someone else because the homeowner was an idiot. Most people bought those homes figuring...hey...market is booming...I get in now, in 2-3 years we either sell or do a refi based on the projected equity...we can swing this deal.

MOST people were stupid and voluntarily got in over their head. They deserve the blame. Some may well have been lied to.
Click to expand...

Maybe people should but it would take a week to read through an entire home loan. People should also be able to trust their banker.
 
Does it have to be the same for all cases?

Or can it vary depending on the specific circumstances?
 
1Perry said:
Maybe people should but it would take a week to read through an entire home loan. People should also be able to trust their banker.
Click to expand...
I sat with my wife at a table going over every line and looking at the cost of the property we just 'had' to have and looked at the monthly payments, the percentages, the final dollar figures, etc. We went through the same thing I am willing to bet MOST of those that are dealing with loan defaults...we can do it...if we roll in the car and the truck payments...no more credit card debt...get rid of the cats...eat Ramen for 3 years, tell the kids we are now athiests and no more christmas...we can swing this easy. I'll get a few raises, you can take on another job part time...we refi before the adjusted rate kicks in (its always easier to refi than buy a new home)...maybe we take out a second for a few years if we have to...we can DO this honey...

I am not saying some werent 'victims'...I AM saying most were 'stupid.'
 
Simon W. Moon said:
Does it have to be the same for all cases?

Or can it vary depending on the specific circumstances?
Click to expand...

I wanted to get people's opinion on the fundamental issue of debt and to which party the burden of the responsibility fell. However, the recent financial crises and the popularity of mortgage loans make them the most relevant.
 
I was an "all of the above", but I will always blame government the most. They created these most unusual circumstances, where everyone thought they could not lose. Had we not had the uber-inflation in the housing market, started by government, everyone would have behaved in far less risky behavior. As it was, the government created huge moral hazards, and huge money making opportunities, and I believe it is quite predictable what happens then :)
 
Eighty Deuce said:
I was an "all of the above", but I will always blame government the most. They created these most unusual circumstances, where everyone thought they could not lose. Had we not had the uber-inflation in the housing market, started by government, everyone would have behaved in far less risky behavior. As it was, the government created huge moral hazards, and huge money making opportunities, and I believe it is quite predictable what happens then :)
Click to expand...
Im not sure what you mean by the uber inflation caused by the government. When the government was promoting home buying, they werent promoting the inflated home costs...they were promoting home ownership and industry. Had people bought within their means, the increase in purchase price and property value surely would have gone up, but it would have gone up appropriately. We didnt take a good thing and make it better...we took a good thing and went from cruising speed to full throttle til the engine burned up.

All that would have to happen for this to correct itself is the government letting the market correct itself. Yes...its going to sting a lot of people. But if this had been allowed to happen in 2007, a lot of people would have declared bankruptcy, those inflated homes would be rental properties, and in another two years, those people would be out of bankruptcy, solvent, and consumers.
 
lenders should make sure those they lend large sums of money to have the means to pay back the loan.

if they don't do that, they put their investors in jeopardy.
 
VanceMack said:
Im not sure what you mean by the uber inflation caused by the government. When the government was promoting home buying, they werent promoting the inflated home costs...they were promoting home ownership and industry. Had people bought within their means, the increase in purchase price and property value surely would have gone up, but it would have gone up appropriately. We didnt take a good thing and make it better...we took a good thing and went from cruising speed to full throttle til the engine burned up.

All that would have to happen for this to correct itself is the government letting the market correct itself. Yes...its going to sting a lot of people. But if this had been allowed to happen in 2007, a lot of people would have declared bankruptcy, those inflated homes would be rental properties, and in another two years, those people would be out of bankruptcy, solvent, and consumers.
Click to expand...

Well, I could repost a lot of links that I have filed, but it is not worth it. The fact is that it didn't take much to tip such as the housing market into uber-inflation. 5-10% in new buyers gets the bubble going, and then it is a beast unto itself. Just as dot-coms were in the latter 90's. Companies that never made money having IPO's worth billions, buying naming rights to football stadiums, and then folding two years later. The term "day trader" arose, and some folks made a ton of loot.

In the housing bubble, government gave it that initial momentum via the massive expansion of Fannie and Freddie in the 90's and their headlong dive into sub-primes. Then it was "hold on". Folks so easily forget that the only ones burned with the housing bubble were the last ones holding the bag. If you sold before the pop, you did well, if not better. But again, while it doesn't take much government to tip things artificially well, and it also doesn't take much to collapse it all.

And when we woke up, everything said "Made in China". Or similar.
 
Last edited:
You must log in or register to reply here.
Back
Top Bottom