(This is Part 3 of a six-part series. Read Part 1, Part 2, Part 4, Part 5 and Part 6.) Consumer groups believe that lenders should be held liable if they allow borrowers to take home mortgages that aren't suitable for them. The first two articles in the series looked at suitability in connection with mortgage selection -- borrowers taking mortgages that are excessively risky for them. I concluded that loan officers and mortgage brokers have neither the incentive nor the competence to apply a suitability standard to mortgage selection. The appropriate remedy to selection of excessively risky mortgages is a sharply targeted disclosure rule. This article looks at suitability as a possible remedy for another problem: unaffordable loans. Suitability proponents argue that loan provide...
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