Now, I'm not going to defend them. In some situations they will allow people to own a home who might not have been able to otherwise, and people will actually survive these loans and even prosper. There are also going to be plenty of cases of people falling on their swords in predictable fashions.
What confuses me, is that these bad loans cause these lenders to declare bankruptcy and go out of business.
Sure, the obvious reason is that that people they lent money to are unable to pay. Clearly, the subprime lenders were playing a game where they were attempting to make money by balancing higher paying loans against people more likely to default, and they lost, mispredicted, etc. Based on the anecdotes that the news is reporting on, the number one reason for the defaults is the rising ARM of the mortgages. You'd thik there would be an easy response to that: Doesn't the lender choose the when to apply the new rate? Can't the lender decide to not raise the rates that force these people out? Can't the lender re-negotiate instead of foreclosing? I'm sure there are complications, reasons why this doesn't work, but it just seems odd to me.
Hmm, I guess they are, according to this article. I guess its just hard work?