Monday Morning: A Subprime Lender That Went Too Far -- Didn’t They All?

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Good Morning. We’ve told you before we’re easily confused, and it’s happening again. This time it’s this MarketWatch report on federal fines against a subprime lending unit of AIG: ‘A subprime-mortgage unit of American International Group offered inappropriate loans to some borrowers and charged fees that were too high, the Office of Thrift Supervision said Friday.’ MarketWatch reports the settlement could cost the company up to $178 million.

So what, exactly, did the lender do wrong? ‘Wilmington originated subprime home loans that were inappropriate for some borrowers, and the firm didn’t properly consider their ability to repay the debt. Some were adjustable-rate mortgages with low ‘teaser’ rates and the OTS was concerned that once the rates reset, borrowers would be unable to afford the payments and could lose their homes to foreclosure.’

And this is our confusion: Wasn’t that standard operating procedure in the subprime lending game until a couple of months ago? People qualified for these loans based on the initial payment, right? Isn’t that why the industry is now fighting new guidelines that would pressure them to consider the borrower’s ability to repay the entire loan?

Somebody help us out on this one.
Thanks for the link: Patrick.net
Photo Credit: Reuters