Government report says lenders not to blame for crisis
12/21/2010
By Credit.com Staff
Banks acted appropriately in granting home loans to some consumers based on what they knew about the housing market at the time, according to a new report from economists at the San Francisco Federal Reserve Bank. Lenders who granted consumers home loans between 2000 and 2007 assumed an average of 3 percent appreciation in housing prices per year, which, based on other market trends at the time, was not overly optimistic.
"The bad news is that this conclusion of rational pricing is predicated on assumptions about underlying house prices that may have seemed reasonable at the time the loans were made, but proved to be disastrously inaccurate after the fact," wrote economists John Krainer and Stephen LeRoy.
Millions of consumers have seen their homes slip in value in recent months, to the point that they owe more on their mortgage than the property is worth. This has led to many simply walking away from the loan.
