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Monday, May 09, 2005

Spitzer v. subprime lending: more unintended consequences

Jay Bryant has an excellent article today about Eliot Spitzer's current attack on subprime lenders. Subprime lending is the practice of lending to those with a poor credit rating or no financial history. Because of the added risk of default, the interest rate on subprime loans is generally higher than a standard loan.

On occasion, people will be forced into subprime loans when they have a good credit rating. This is predatory lending and those who conduct business this way should be prosecuted. However, subprime lending serves a very legitimate purpose to provide loans and capital to those who would otherwise not be able to get it.

As Jay rightly points out, Spitzer's latest crusade against the subprime market could have very damaging effects on those he purports to speak for: the common man. A crackdown on legitimate subprime lending would have the effect of decreasing home ownership among middle and lower class families. And of course Spitzer will point the finger at the subprime market rather than take a hard look in the mirror.

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