Thursday, May 29, 2008

Stated HELOC dischargeable

This write-up by Tanta on Calculated Risk underscores a key, obvious point on what drove the lax lending standards during the recent housing bubble, namely that ability to pay did not matter so long as the debt was collateralized by a rising asset. It did not matter if the borrower had a job, so long as the house the loan was secured against kept rising 20% a year.

That said, both the lender and the borrower to placing the same bet. Here, the borrowers lost, and will go bankrupt. Maybe the lender should do the same?


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