Banking outrage de jour: bailout bank loans 125% house value

[RandomGuy]

A bank being bailed out by taxpayers continued loaning people 125% of the value of their houses after they started receiving bailouts for making mad loans.

Oops.


By the way, this is in Britain, and it was British taxpayers taking the soaking.

Treasury failed to act over bank warnings
By Alex Barker and Jim Pickard

Published: March 20 2009 00:01 | Last updated: March 20 2009 00:01

Northern Rock lent £800m of mortgages to homebuyers at more than than the value of the properties even after the bank had become reliant on taxpayer support, it has emerged.

http://www.ft.com/cms/s/0/069577d8-14d9-11de-8cd1-0000779fd2ac.html?nclick_check=1

[DarrinS]

RG, if the person getting the load has outstanding credit, do you still have an issue with this? Just curious.

[RandomGuy]

RG, if the person getting the load has outstanding credit, do you still have an issue with this? Just curious.

It depends.

Even someone with great credit can lose a job, especially in an economic downturn. Generally 125% notes given out are bad ideas for this reason.

BUT

I would have no problem loaning 125% to someone with a net worth of, say, $20M who was buying a $1M dollar home. That would make for a decent risk.

In general though such lending would have to be VERY carefully doled out, with rather strict underwriting standards.