New York Times: Lenders Again Dealing Credit to Risky Clients (!)

[steve2470]

http://www.nytimes.com/2012/04/11/business/lenders-returning-to-the-lucrative-subprime-market.html?ref=todayspaper

Annette Alejandro just emerged from bankruptcy and doesn’t have a job, and her car was repossessed last year. Still, after spending her days job hunting, she returns to her apartment in Brooklyn where, in disbelief, she sorts through the piles of credit card and auto loan offers that have come in the mail.

“Even I wouldn’t make a loan to me at this point,” Ms. Alejandro said.

In the depths of the financial crisis, borrowers with tarnished credit like Ms. Alejandro were almost entirely shut out by traditional lenders. It was hard enough for people with stellar credit to get loans.

But as financial institutions recover from the losses on loans made to troubled borrowers, some of the largest lenders to the less than creditworthy, including Capital One and GM Financial, are trying to woo them back, while HSBC and JPMorgan Chase are among those tiptoeing again into subprime lending.

*end of excerpt*

Another sub-prime crisis, here we come

[KansDem]

1. I see a *new* TEA Party emerging!

[font size="3"]TARPed
Enough
Already!!!

[Yavin4]

2. I Have One Credit Card and I Pay Off My Balance in Full Every Month

And I never get credit card offers in the mail.

[unblock]

3. well, closing out lending altogether to sub-prime borrowers isn't the right answer either.

it's all about managing the risk properly.

diversification, sufficient reserves and set-asides, monitoring, proportion, and so on.

lending to people with a credit score below 720 isn't in and of itself a bad thing, it's just that it needs to be done correctly. we got into this mess not because sub-prime mortgages existed at all, but because they were done cavalierly, with essentially known fraud and minimal oversight, improper due diligence, insufficient reserves, insufficient diversification, and excessive leverage.

now especially, because of the terrible economy over the last few years, a lot of "sub-prime" borrowers are actually financially responsible people who just got hit with bad news. to the extent that some of them are back on their feet, they should behave more like prime borrowers and just need a way to rebuild their credit record.