Comment by scarface74 | Hacker News Reader

Comment by scarface74 | Hacker News Reader

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Was it morally questionable when the same banks did predatory lending that went bad and got bail outs from the taxpayers?

It’s a business transaction. Businesses default on loans and go bankrupt all of the time and it’s just part of doing business.

Startups fail all of the time and lose investor money and can come right back to the trough.

That’s like businesses that say “we are family and we are in this together and we need to make a shared sacrifice” while they walk away with golden parachutes and leave the employees with nothing.

Heck we elected a president that filed for bankruptcy 4 times.

Businesses love to talk about morality as long as it benefits them. My last company had a budget shortfall because of Covid and trotted out the “we are family” schtick along with a 10% pay cut. The same day of the announcement I was looking for another job.

3 years later when I did get another loan, the banks saw my foreclosures and short sales and were more than happy to give me a mortgage that was 50% more than my prior one. It was just business to them too.

>...3 years later when I did get another loan, the banks saw my foreclosures and short sales and were more than happy to give me a mortgage that was 50% more than my prior one. It was just business to them too.

FHA loans are guaranteed by the the federal government. During the next recession if you default on this loan because you no longer want to pay the loan, it will be the rest of us taking the loss, not the bank. So, not very surprising that the bank was willing to give you the loan.

That’s not the way insurance should work. You pay private mortgage insurance. The entire idea of insurance is that it should be priced to take losses into account and break even.

Btw, none of the other loans were “conforming” ie government backed. Especially the investment property. The banks should also take risk into account when deciding interest rates. The government had no reason to be on the hook for non conforming loans.

> The entire idea of insurance is that it should be priced to take losses into account and break even.

insurance needs to make a profit or there is no incentive for investors to risk the loss of capital or assume the opportunity cost (meaning they could invest elsewhere). The person selling the insurance exchanges gives up a known regular amount to protect themselves against an unpredictable potential loss. The insurer accepts the risk of paying the unpredictable future cost in order to receive known predictable regular income. If the expected value of the transaction is zero then the insurer is essentially risking their capital for nothing.

The FHA is a government backed program. PMI goes to the government.

> FHA loans are guaranteed by the the federal government. During the next recession if you default on this loan because you no longer want to pay the loan, it will be the rest of us taking the loss, not the bank.

everyone likes socialism when they get paid, no one likes socialism when they have to pay for other people's stuff. This is probably a failure mode.

Taxpayers shouldn’t have to pay for foreclosures backed by the FHA. That’s what private mortgage insurance is for. The problem was the banks weren’t following the guidelines.

The taxpayers definitely shouldn’t have had to bail out the banks for loans that the government didn’t back.

> Was it morally questionable when the same banks did predatory lending that went bad and got bail outs from the taxpayers?

Yes.

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