Subprime mortgages have taken a lot of heat, but RBC says “don’t blame the product.” Blame the players.
Subprime loans help economies by making homes more accessible–if the money is loaned intelligently. The problem in the U.S. was unsound underwriting, plain and simple. Giving people BIG loans with no proof of income, debatable credit, insufficient debt service analysis, no supporting documentation, and no appraisals was just asking for it.
That doesn’t mean lenders now need to be drowned in new regulations. Market forces will surely correct many of the excesses. In addition, RBC gives plenty of examples of how hastily crafted laws meant to “protect” consumers actually hurt America’s financial industry and were ultimately overcome by loopholes.