I think we're going to be hearing a lot more of this over the next few months:
Treasury Secretary Henry Paulson, at a housing conference yesterday, said he is "aggressively pursuing" an agreement with lenders and investor groups to freeze rates on subprime adjustable-rate mortgages at their original levels. The proposal, aimed at helping homeowners who would fall behind in their payments at higher rates, is designed to prevent a surge in foreclosures next year. About 1.5 million subprime adjustable-rate mortgages are scheduled to reset to higher rates in 2008.But as outlines of the plan become known, some homeowners are complaining that the effort isn't fair to borrowers who didn't overextend themselves. Others argue that the government shouldn't be involved in perpetuating a housing bubble that needs to deflate. A key question: How far should you go to help borrowers who can't pay their bills?
"People have to be responsible for their own actions," says Harry Lancz, a small-business owner in Traverse City, Mich. He holds a pair of fixed-rate mortgages, one for his primary residence, which has been for sale for six months, and one for a second home in Louisiana. "What are you going to do when their credit cards get due and they can't pay? Are you going to bail them out on that, too?"
I said in my previous post that I'm not sure it matters who's at fault, but of course, politically it does matter. Borrowers may have had help getting in over their heads, but at the end of the day, "variable interest rates vary" is not in the realm of things it is unreasonable to expect them to have understood when they signed on for a gigantic mortgage. Indeed, many of the defaulters seem not to be able to afford their teaser rates, which is certainly something they should have been able to figure out on their own. One of the reasons that I do not currently own a home is that I cannot afford one. Now I get to pitch in my tax dollars to bail out people who also could not afford a home, but went ahead and bought one anyway.
I can't say that this thought is keeping me awake nights; keeping people from losing their homes, however stupidly acquired, strikes me as a better use of my tax money than much of what the government does, especially if this has the side effect of forestalling a financial crisis. And the cost of it is likely to be small compared to, say, invading Iraq or buying prescription drugs for affluent seniors. On the other hand, I am a contented renter, not a family crammed into a small home they could afford on a fixed rate, watching neighbours in bigger houses get a helping hand from Uncle Sam.
I don't think there's much doubt but that a sizeable percentage of the people who will get extended rates under this plan will, in fact, end up defaulting.
The major point is, I believe, to spread out the collapse so that it's more controlled and the communities in which these foreclosures take place don't get quite as hard all at once with a drop in the revenue raised by property taxes. (Also, the more houses in foreclosure in a neighborhood, the more it drags down the value of the other houses there.)
So we may end up at the same point, but the hope is with fewer side effects.
I go one step further.
I get to pitch in my tax dollars to bail out people who also could not afford a home, went ahead and bought one anyway... and would have sold their homes at prices I could afford were it not for the bailout.
True story: I live 3 blocks from some great new apartments that my wife and I considered buying 2 years ago. They were overpriced, and their buyers are now overleveraged.
The mere promise of a bailout is enough to keep those people in those homes... Prices are not coming down, and the buyers are being insulated from their own stupidity through lower interest payments.
My wife and I? We still rent.
The government punishes the thrifty and rewards the frivilous.
I think over-extended folks should be thankful for the opportunity to have spent a few years living like those with much more means. Now they can move a few miles further from the city and live the still-pretty-nice existence of upper-middle class folks they really are... Or a tiny notch below as their finances rebound.
Now it should be my turn to live like the wealthier folks. After all, I saved my money like I should have... I did everything right... I'd be able to afford a place based on actual market conditions... But the government puts its thumb on the scale to overcharge me.
F&@$ers!
One of the reasons that I do not currently own a home is that I cannot afford one.
Yes, I'm sure that the people who are losing their homes also attended Penn and the University of Chicago and had an understanding comparable to your own of both financial instruments and markets.
How much schooling do you need to understand that you're borrowing a #$*^load of money that you'll have to pay back?
I don't have a dog in this hunt directly, having arrived in my present state with a house and no mortgage, done by selecting homes that we could afford and staying away from variable rate mortgages.
But, we've already paid a premium in inflated market prices driven by the creative lending frenzy, and I sure don't want to pay more in taxes by virtue of the government intervening to keep the housing bubble alive.
I doesn't take an IQ out of the double digits to understand that buying more than you can afford with variable rate financing is a recipe for personal disaster.
By the way, Sen. Levin (D-Michigan) is now trying to jawbone down rates for those with poor credit who failed to read the terms of their credit card agreements. Where does this stop?
Rob Lyman: however much schooling they needed, it was apparently more than several million of them had. Just this past summer, my wife bought a "how-to-save" self-help book that absolutely commanded the reader to purchase real estate, and to leverage whatever was necessary in order to do so with as little money down as necessary, because housing prices always go up. When you have a national industry dedicated to convincing the financially unsophisticated to do something, a fair percentage of them (hell, us) will be convinced.
General point: when the overextended homeowners default, they will have no homes and wil have to find affordable rented housing, while they will also no longer have any credit; a lot of them will suddenly be much, much poorer than they were. As their properties are foreclosed upon, housing prices will fall dramatically. Major financial institutions overexposed to SIVs may crash. Credit markets may seize up. The economy may go into recession. Everyone will get hurt. The government is going to do something to try to prevent this, and finding some way to stop those homeowners from defaulting seems to be one of the easiest ways to do it. We know that when there is broad-based market failure, the government will have to step in to prevent recessions. This guarantee creates moral hazard for the financial industry, which has an incentive to create investments carrying crazy risk, since they know Uncle Sam will ultimately bail everyone out. The flip side of that coin ought to be strict regulatory oversight to ensure that the geniuses of Stamford don't cook up financial Rube Goldberg instruments so complicated that even they can't figure out how they work, or how much risk they carry. When you abandon regulatory oversight and the culture of fiscal caution, this kind of crap is what you get.
"The government punishes the thrifty and rewards the frivolous" is precisely what someone who had put their cash under a mattress would have said about federal deposit insurance for bank accounts in the '30s.
Bill Beeman: to reiterate, it stops when the government starts outlawing exploitative terms on credit cards and mortgages, so that financial institutions are no longer allowed to prey upon people who aren't very smart. You keep saying, wow, to take terms like that you had to be really dumb. Fine. Is there some moral or economic argument that it should be okay for sophisticated corporations to prey upon the weakness of the dumb?
Brooksfoe: "so that financial institutions are no longer allowed to prey upon people who aren't very smart."
I guess, when you get right down to it, I don't have any sympathy for those "who aren't very smart."
A fool and his money are soon parted...
brooksfoe wrote: Bill Beeman: to reiterate, it stops when the government starts outlawing exploitative terms on credit cards and mortgages, so that financial institutions are no longer allowed to prey upon people who aren't very smart. You keep saying, wow, to take terms like that you had to be really dumb. Fine. Is there some moral or economic argument that it should be okay for sophisticated corporations to prey upon the weakness of the dumb?
Tell me, what is an "exploitative rate" on a credit card, given that it is an instrument that
(1) Allows the borrower to incure substantial amounts of debt on a whim;
(2) ...with no security for the lender to fall back upon in the event of nonpayment;
(3) Allows the borrower to carry that debt to the end of the month with no interest at all if s/he clears the balance at that time;
and
(4) Must, by virtue of government anti-redlining laws, be issued to virtually all comers with a no other allowance for risk besides credit score?
If you were the lender, what kind of premium would you place upon that risk, especially when regulations burden you to accept risks that you would otherwise deem as unwise?
Unfortunately, that's basically what the subprime mortgages became: an enormous credit card, available to effectively all comers with the highest credit risks still being eligible to borrow, but at more obnoxious rates. It was a foolish thing to both offer these as a lender or to accept them as a borrower, but I'm not sure how it was exploitative.
The fact that some people will make foolish choices when given the option to do so, in no wise carries an inherent government mandate to regulate every scintilla of behavior surrounding those choices. Example: Here's a handle of Jack for you to contemplate, offered for sale. Now, maybe you're one of those people who doesn't understand or respect the influential power of alcohol over human behavior. But provided you stay out of situations where you clearly endanger others (e.g. drunk driving), is it the liquor store's fault or a cause for government action if you wake up tomorrow morning with a splitting headache and still wearing a faint impression of your boss's wife's lipstick?
brooksfoe--
"We know that when there is broad-based market failure, the government will have to step in to prevent recessions. This guarantee creates moral hazard for the financial industry, which has an incentive to create investments carrying crazy risk, since they know Uncle Sam will ultimately bail everyone out."
what is the: "broad-based market failure" you are referring to?
"Is there some moral or economic argument that it should be okay for sophisticated corporations to prey upon the weakness of the dumb?"
That it's not the government's job to determine if somebody is making a bad decision because they are dumb, or just greedy? People were taking advantage of a hot market, and assumed that house prices would go up forever. The interest only loans and ARMs were based on being able to refinance at lower fixed rates when the housing market increased and you were able to use your equity as collateral for a better loan. That or the thought that they could flip the home and make a bunch of cash.
Some people were in it to make a lot of money and got caught with their pants down. Some people got greedy and bought more house than they can afford. I don't have a problem with the government helping people get out of houses they can't afford and trying to mitigate the credit problems that go with it. I have a major problem with the government throwing billions of tax dollars away allowing people to live beyond their means. It just gives incentives to people to make these same bad decisions again and again.
"a lot of them will suddenly be much, much poorer than they were."
Much poorer as in now forced to live within their means? In my view they were much richer than they should have been, and renting a place shouldn't be viewed with some bad stigma. Renting has a lot of perks, I pay one monthly rate and don't have the pitfalls that homeowners have (zero maintenance costs, easy to move etc.) It also happened to be a hell of a lot cheaper then buying a place of similar quality.
On a somewhat abstract level, I think there are two groups of people under discussion, those who will learn a lesson from their experience and those who wont. I see no good reason to bail out the former and a good reason not to (i.e., don't teach the wrong lesson). But there are undoubtedly people who don't understand the situation they're in and would repeat it in the future. I don't mind assisting people in the latter group, but I'd want something in return. I could imagine them forfeiting their future access to credit without a responsible co-signer or the like. I'd leave it up to the individual to decide which group they fell in.
On a more practical level, I could believe that the problem may be sufficiently large that we have no choice but to bail everybody out to prevent even worse consequences.
MEH-
The Greenspan put is a good example of what brooks was talking about.
We;ve seen this in action during the asian crisis, where he simply lowered rates inbewteen meetings to prevent a possible market dislocation.
I think the mojos gone this time though, no rate cuts are going to save the economy this time. Note that Libor and prime mortage rates are about the same, while govy bonds are !.5% lower.
Very Scary.
I guess, when you get right down to it, I don't have any sympathy for those "who aren't very smart." - Jmo
Well, at least you're honest about it. Not gonna win you any points in church, though.
The fact that some people will make foolish choices when given the option to do so, in no wise carries an inherent government mandate to regulate every scintilla of behavior surrounding those choices. - anony-mouse
I absolutely, absolutely agree. I think that government regulation should be restricted to situations which carry a genuine risk to society and which cannot be solved by individuals or other entities. Periodic bubbles and crashes in financial markets due to unwise lending clearly fit that bill to a tee. This is now the second massive financial institution crash driven by mortgage lending and requiring a vast government bailout within my working lifetime, and I'm not yet 40. Personally, I have never taken out a mortgage (because I can't yet afford one), and I have exactly one credit card which I always pay on time. But as a taxpayer, I keep having to bail out bank officers every couple of decades. I am sick of it, and I want the government to start telling these jerks that they aren't allowed to con people with bad judgment into overextending themselves so that they can book the short-term profits and then call in Uncle Sam to pick up the tab when their borrowers default.
I do not, however, want the mechanism of the government communicating this to the financial industry to be a refusal to provide a bailout which could cause a worldwide recession, and thus also hurt me financially. I want the government to help keep the world financial system running, as Messrs. Keynes and Greenspan agree it should, but also stop lenders from exploiting that guarantee at taxpayer expense, which Mr. Greenspan apparently thinks is just fine.
" I keep having to bail out bank officers every couple of decades. I am sick of it, and I want the government to start telling these jerks that they aren't allowed to con people with bad judgment into overextending themselves so that they can book the short-term profits and then call in Uncle Sam to pick up the tab when their borrowers default. "
--brooksfoe,
If really believe that (above), you should see:
http://video.google.com/videoplay?docid=-466210540567002553&q=money%2Bbanking%2Band%2Bthe%2Bfederal%2Breserve&total=294&start=0&num=10&so=0&type=search&plindex=0
to mickslam's point of the "Greenspan put"
Brooksfoe: "When you have a national industry dedicated to convincing the financially unsophisticated to do something, a fair percentage of them (hell, us) will be convinced."
I guess the big difference between us is that I hold people resonsible for what they believe and what they do.
The fact that friends, family, corporations, the church, the government, etc. tells someone to do something doesn't absolve them of responsiblity.
Jmo
"This is now the second massive financial institution crash driven by mortgage lending and requiring a vast government bailout within my working lifetime, and I'm not yet 40."
That is until the bank managers find another bubble market that is unregulated and we repeat the cycle. If we don't bail them out then they will learn that this type of boom/bust investing is going to result in a lot of pain and in their own interest not do it.
That’s pretty much the entire Nanny State summed up in on sentence.
it stops when the government starts outlawing exploitative terms on credit cards and mortgages,
MM's whole point is that doing that does no more than either 1) deny some people access to credit they need, possibly turning small personal finance problems into huge ones, or 2) send them to the unregulated kneecapping market.
I guess the big difference between us is that I hold people resonsible for what they believe and what they do. - Jmo
"...that though indeed these are criminals who do not withstand such temptation, yet neither are those innocent who lay the bait in their way..." - Thomas Jefferson, Virginia Statue for Religious Freedom
I know of no safe depository of the ultimate powers of the society but the people themselves; and if we think them not enlightened enough to exercise their control with a wholesome discretion, the remedy is not to take it from them but to inform their discretion.
Thomas Jefferson
I sincerely believe that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.
Thomas Jefferson
We may consider each generation as a distinct nation, with a right, by the will of its majority, to bind themselves, but none to bind the succeeding generation, more than the inhabitants of another country.
Thomas Jefferson
"If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them (around the banks), will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered."
Thomas Jefferson
--brooksfoe,
you picked a fine tree, pick liberally from its Fruit.
it stops when the government starts outlawing exploitative terms on credit cards and mortgages
Translation: "it stops when the government outlaws lending money to poor people and the unemployed". Hard to see how that's going to help them in the long run.
I love all this talk of "exploitative rates", as if you needed more than a 6th grade education to figure out that 28% interest on your $10,000 shopping spree adds up to a lot of money, or that the home you can scarcely afford at 4% interest will be entirely UNaffordable at 8%.
Brooksfoe: "When you have a national industry dedicated to convincing the financially unsophisticated to do something, a fair percentage of them (hell, us) will be convinced."
Just who are we talking about as "financially unsophisticated"? Joe the Walmart Associate and Jill the bread store clerk are financially unsophisticated, but I doubt any bank would give them a dubious mortgage on an overpriced house (unless the government already guaranteed a bailout), and I have absolutely no sympathy for someone making six figures that didn't bother to figure out the financial implications.
certainly something they should have been able to figure out on their own.
Assumes facts not in evidence.
1. Once upon a time in the early 90s I was a mortgage broker. Back then Fannie Mae ratios were much stricter. When my wife and I bought our place in 2003, I was shocked that I even qualified for a loan. Being good at math, I had already calculated that we couldn't afford our home based on the old (pre subprime lending) math. In less than ten years the rules had changed radically. We didn't get a subprime loan, mind you; the industry had merely loosened its ratios considerably.
2. Most people are not very good at math and in fact don't even have a budget. When credit cards were first introduced in the 60s, many people boycotted the banks. They "knew" that debt was bad. In the last 40 years, as the growth in household credit card debt has indicated, they "forgot" what they "knew" previously. In both cases, I doubt the vast majority of people "figured out" anything. They just went along with what everyone else did. And this is what many people did during the subprime crisis.
China right now is where the US was 40 years ago - high savings rate, low credit card penetration, low national budget deficit. It will be fascinating to see how they adjust. If the childhood obesity rate is an indicator (kids there are generally fatter thanks to the growth of McDonald's & KFC, which didn't exist in China 20 years ago), we're in for some crazy times ahead.
Dan, that's completely incoherent. How has it helped poor people to have access to loans they can't repay? If you don't need more than a 6th grade education not to default on subprime loans, lines of credit, or credit cards, then why are millions of people with more than 6th grade educations defaulting? Did they want to default? Did they want to lose their homes? Are they insane? If you answer "no, they were stupid," why is it virtuous or productive to take away the homes of stupid people, or to lure them into purchasing shiny baubles which, in the long term, lock them into paying large portions of their income in high interest?
Derek Scruggs has it exactly right. I was shocked, when I moved to Holland, to discover that I couldn't get a credit card. Period. Debit card - fine, no problem. But I hadn't lived in the Netherlands and had no employer, monthly salary, or history of regular salary deposits into my bank account; so, no credit card. Back in '99, people thought the Dutch were needlessly hamstringing their consumer economy with such pointless, antiquated thriftiness. These days, their attitudes aren't looking so dumb after all.
brooksfoe,
From what I read on the housing blogs, the Netherlands is experiencing a bubble, too.
markm,
Joe and Jill did get those loans--there's a now legendary housing bubble story of a strawberry picker who was approved for a 700K mortgage. For details, see thehousingbubbleblog.com.
Anyone who thinks that the present mess with the credit card industry is the fault of the borrowers because they simply "didn't read the fine print" obviously hasn't taken a look at what is going on:
Changes in FICA score (which may be caused simply by checking credit, opening a new credit card, or CLOSING a credit card) resulting in large changes in credit card rates which are then applied retroactively to all of the balances. When asked as to why the changes in FICA scores happen, answer is "well, the computer decides." This happens even if the credit card holder has never been late with any payment.
VERY high rates of up to 30%.
It's not much of a contract if one side gets to change the terms whenever it feels like it.
"Dan, that's completely incoherent. How has it helped poor people to have access to loans they can't repay?"
This isn't the poor masses we're talking about either. they are well above the poverty line and probably have above median incomes. They took a subprime mortage out, because they either didn't save money for a down payment or had bad credit. To view these people as poor and dumb is condescending to the far majority that took the same types of loans our and are repaying them. Is it really millions of people who are defaulting on these loans?
Is there some moral or economic argument that it should be okay for sophisticated corporations to prey upon the weakness of the dumb?
Is there any moral or economic reason why it should be okay that my living costs are so high because other people are irresponsible diving into debt to raise their bids for real estate, and then live much better than I do, and get bailed out when they can't cover the costs of that lifestyle?
But that's the point of credit card debt. You take it out at whatever the interest rate is, but you agree, in what is footnoted pretty clearly if you bother to follow the asteriks to the footnotes, that the banks can pretty much change the rate at any time for any reason.
It is essentially, legal loan-sharking. And that's fine. Unlike regular loan-sharking, they can't break your legs or kill you. I find this preferable.
Nice, no, fair yes.
How has it helped poor people to have access to loans they can't repay?
It doesn't help those who default. But it does help those who actually do manage to repay their loans, which as of right now, is a substantial majority of both credit-card and subprime debtors. Unless you have a magic wand for determining who's going to default (in which case you shouldn't be wasting your time on blogs), the only way to prevent the defaulters from getting loans is to prevent non-defaulters with similar histories from getting loans.
Brooksfoe: "why is it virtuous or productive to take away the homes of stupid people, or to lure them into purchasing shiny baubles which, in the long term, lock them into paying large portions of their income in high interest?"
Why do you have any sympathy for these people? If they can't resist temptation they should suffer the consenquences. I guess what you are arguing is that those who can't resist temptation should be prohibited by law from making bad choices...
I find that attitude to be so condecending - you feel that most people don't know what's good for them and it is the duty of the state to prohibit all "bad" choices.
I'm sure many of the people who are having to default are people who didn't understand how an ARM works or appreciate the risk they were assuming. Perhaps we should do more to make sure people understand this risk.
I would guess that the majority are people who at least partially understood it, but were willing to proceed anyway because of some combination of (a) everyone else is doing it, and (b) they were betting that they would never be called.
However, I find myself really dispassionate about this in that I'm not willing to start guessing people's motivations, point fingers, and throw around words like greedy, dumb, poor, predator, etc. One man's "greed" is another man's "fairness." The bottom line is that a lot of people made a bet that ended poorly for them.
Oh well.
How is this any different from stock market risk?
...my wife bought a "how-to-save" self-help book that absolutely commanded the reader to purchase real estate, and to leverage whatever was necessary in order to do so with as little money down as necessary, because housing prices always go up...
This is (still) good advice, long term. The problem isn't the asset (real estate) that you're investing in, it's how much you're paying to get the money to do it, and can you afford that.
grumpy realist-
that would be "FICO" score, not "FICA". And it is impacted by changes in your leverage, payment status with other creditors etc. (as well as, occasionally and unfortunately, by identity theft and computer error).
In other words, the credit card issuer may have a provision that says if your creditworthiness worsens, they may charge you a higher rate to reflect that.
The Horror!
Meanwhile, back in issuer land, if a consumer credit providers calls you on a late payment and you pay just a little bit, or just *promise* to pay something soon, they are generally enjoined by law from taking action.
There's even a case in NJ where a court ordered a loan forgiven because it was taken by ATM withdrawal in a casino - the judge thought that was an inducement to gambling and inappropriate (there was some ancient statutory support).
Consumers have a lot of protections, folks. Let's not pretend they don't exist.
"Mindles_H._Dreck": So, are casino ATMs now modded so they won't let you use the credit card's cash withdrawal service there?
All I can say is, I wish I had known about that ancient precedent before the ruling...
Dan, that's completely incoherent. How has it helped poor people to have access to loans they can't repay?
It helps the majority of poor people who CAN repay them. It is not possible for the government to deny idiots the ability to take out loans without denying an even larger number of intelligent and/or responsible people in similar circumstances from taking out loans as well. For example, I was unemployed for a while and acquired a lot of credit card debt during that time. When I regained my job, I paid it off. Thankfully, no well-meaning socialists were there to "protect" me from taking out that "exploitative" loans, or I'd have had no food, no clothing, and no place to live.
I guess you could say something nonsensical like "they could have offered you a lower interest rate" instead of exploiting you, but an intelligent and educated person will recognized that "unemployed and without any income" means "likely to default on the loan". That means either charging enough interest to make up for all the deadbeats -- or not offering the loan. There are exactly those two choices, neither more nor less.
Yeah. Go ahead and try to explain the moral or economic justification for teaser mortgage rates. Anyone who can obtain a mortgage with a teaser rate should be able to obtain one with a steady rate. The difference is that teaser rates are enticing to people with unrealistically optimistic assumptions about winning the lottery in a few years -- i.e., most of us. Notice that there don't seem to be many loans out there that start out at very high interest rates which then fall sharply over time. Teaser rates are a way of locking people into loans that will, in the long run, hurt them, but appear attractive in the short run.
The best you can say for them is that they allow people who have realistic expectations of much greater earning power in the near future to buy their house a couple of years earlier. Okay, so, we may be about to crash the world's credit system. But on the bright side, some 20-somethings could buy houses a few years earlier than they otherwise might have! Enabling them to take part in a housing bubble and thus lose a lot of money they otherwise wouldn't have lost! Great.
brooksfoe,
How about a deal? If people took on loans without understanding the terms, can we agree that as a condition for getting government help they will revoke their right to sign a mortgage contract in the future? If they are incapable of recognizing their financial limits today, why should we expect them to do better next time? Now that thanks to well-meaning politicians we all got to lend a hand, shouldn't we be allowed to put restrictions on defaulting borrowers' spending habits?
I'm not sure that I want the government to do anything about it, but I really hate deals that advertise a rate or monthly price that is for a "limited time" and quietly mumble or print in microscopic print the actual long-term rate or price. I see this in lots of places. Unfortunately, it sometimes a good thing (1 year no payments no interest loans for furniture or appliances) but sometimes a bad thing (get cable for $29.99/month - for four months, then it's $69.99/month).
These teaser rates fall into this category... though again, not sure if I really want anything done about them.
EI
I'm not so quick to forgive the government bailing out defaulted mortgages, for the same reason as corporate bailouts are a terrible waste; it merely serves to soften the budget constraints of economic actors, and impair the ability of market exit to act as a signal. It's a very destructive way to warp the incentive structures of a market.
there's a now legendary housing bubble story of a strawberry picker who was approved for a 700K mortgage. For details, see thehousingbubbleblog.com.
Posted by Amy P
There are only two ways that could happen: fraud, or the bank doesn't care about ability to pay because the government guaranteed the loan - in other words, because our congresscritters transferred all the risk from borrowers and lender to us. (These possibilities are not mutually exclusive - if you want bankers to be alert for indications of fraud, make sure some of the costs of a successful fraud will fall upon the bank.)