Though I agree with much of what Dr Sowell writes, the sub-prime was much more than loans for the purchase of homes beyond the borrower’s means.
Borrowers who found themselves with credit scores inadequate to qualify for Fannie/Freddie loans were helped by sub-prime Lenders. It isn’t only bad credit that has a negative impact on credit scores. Many potential borrowers had inadequate (no enough) credit - less than 3 tradelines and no mortgage history (renters) on their credit reports. Otherwise, many of these borrowers had perfect credit - never late on the limited credit they did have.
Other potential borrowers who were shut out of the housing markets because of Fannie/Freddie rules were those with credit derogs. due to past medical expenses, divorce, death of a spouse, etc. who did not have enough time to “reestablish” their credit for acceptable credit scores. Sub-prime Lenders realized that there was a need for financing for these borrowers and it was a perfectly good reason to loan to these borrowers.
There are always “market corrections” - foreclosures, short sales, etc. in the business cycle. Recovery is much sooner if the marketplace, without government intervention, os allowed to work.
If someone is a high risk for credit then why doesn't that person just get a higher interest fixed rate loan.
Then after paying his mortgage on time for a few years, he can most likely refinance to a lower fixed rate.
Why do subprime loans also have to be interest only or even negatively amortized as most of them seem to have been?