A bank that lends on an asset which is going to plummet in value is just as culpable as the consumer who borrows to buy it. And it also has financial "experts" who are supposed to estimate those sorts of things, as opposed to consumers who are generally not in the business of doing long-term asset pricing.
May plummet in value, not will. And when you're talking 30-40 year loans, the average expectation is the value will increase over that time period.
Plus, here's why you're wrong: The loan isn't on the house. The loan is to the individual, who then signs the house over as collateral. The loan is not attached to the house, it is instead a lien against the house.
If you take out a car loan, there is an understanding that the value of the vehicle WILL go down. Yet you make payments on that in good faith. Stop paying, the bank takes the vehicle.
I still don’t get this whole “blame the bank” thing. It’s ALWAYS been accepted that banks are in business to turn a profit. That is assumption number one. Assumption number two, is that if a deal is too good to be true, it probably is. Let’s say the going loan rate is 6.5%. You apply for a loan, but your credit is so shoddy that they approve you at 9.9%, with a 5 year arm to a minimum of 12.5%. Would you take that deal? Consumers ASSUMED that the home values would continue to rise. So, thinking they could flip the house and take a tidy profit, they bought them.
Now, plenty of banks out there were offering really bad products. NINJA loans (no income verification), ARMS, Balloons, it goes on.
Let’s make the comparison, though, to food. If I’m running a grocery store, and all my products have expiration dates of tomorrow stamped on them, and you come in and buy $300 worth of groceries, who’s the idiot? Me for selling a crappy product, or YOU for buying more food than you could possibly consume before it expires?
The rules of Buyer Beware are always in effect. There are always scam artists out there, and they should be punished accordingly. But when an ill-informed CONSUMER enters into a financial obligation with a bank offering a CRAPPY product, the CONSUMER is certainly at fault.
In today’s day and age, with access to information being so widespread in the western world, there is no excuse to be ill informed. *expletive deleted*it, most of these people could have avoided problems with their loans simply by reading the documents they signed, and understanding that if the value of the home didn’t go up, they would still be making payments on the damn loan.