Subprime Mortgages, Redux

In my last post, I talked about how stupid this whole concept of a subprime mortgage bailout is. Today I read an article talking about how lenders are now less likely to loan money to people who are questionable credit risks. Of course, that is a good thing. The interesting thing to me was near the end of the article, where they describe the situation of a young woman who qualified for $600,000 worth of mortgage loans on an income of only $20,000 per year!

Why would anyone in their right mind loan someone making near the poverty line that much money?! And why would anyone in their right mind take on mortgage payments of $5000 a month with an income that low?!

Now I understand that there was some rental income from tenants that probably helped out, but come on. One of her tenants was her mother who was on disability, and unless her home was a mansion, I don't see how she could rent it out for enough to make up the difference. I feel no pity for the borrower, and I especially feel no sympathy for the lender who will probably end up taking a big loss on the transaction.

As an aside, I always found it somewhat funny that lenders will charge bad credit risks HIGHER rates of interest on loans. These people already have a questionable ability to make payments, so it would seem silly to make them pay more than the average person, thus decreasing their chances of meeting their obligations even more. Now I understand that the reason has to do with the fact that lenders need to be compensated for taking on a credit risk, but it still seems a little funny to me.