Does it pay to play by the rules?

"If your mortgage gets cut in half, you're a much better risk than an idiot who is struggling to make his mortgage payment."

Schiff is convinced that angry homeowners will queue up right behind the victims of predatory lending in hopes of landing their own mortgage modifications. He's especially frustrated by the thought that the program could benefit unscrupulous lenders who created the subprime mortgage mess in the first place.

"You're going to have all these mortgage bankers who have nothing to do cold-calling the country, trying to encourage people to qualify," he predicts. "Instead of encouraging people to exaggerate their income, now they're going to lie to minimize their income."

Faulty assumption
However, Charles Geisst is not so sure people will exploit the government's good intentions.

"That was the same assumption used to revise the bankruptcy laws a few years ago, that people were taking advantage of bankruptcy and using it as a tool. I don't think so," says Geisst, professor of finance at Manhattan College in Riverdale, N.Y., and author of "Undue Influence: How the Wall Street Elite Puts the Financial System at Risk."

"I'm sure some did (take advantage), but I think it was just a matter of people being in over their heads and not realizing it," he says. 

Kathleen Day, spokeswoman for the Center for Responsible Lending in Durham, N.C., believes it's wrong to point the finger of blame at borrowers who have fallen into a pit of trouble and are now looking for help to climb out.

“If anyone thinks that they're an idiot for acting responsibly, just look at the mess we have.”

She says no one in their right mind would join in the subprime debacle voluntarily.

"If anyone thinks that they're an idiot for acting responsibly, just look at the mess we have," she says.

In fact, she says, the majority of people who took out subprime loans actually have played by the rules and acted responsibly, despite a widespread perception to the contrary.

"Were there some outliers? Sure," she says. "But just looking at the mortgage market, 90 percent of the people who got subprime loans live in their homes, and six out of 10 who got a subprime loan in 2006 had a credit score that would have qualified them for a traditional, lower-cost loan."


If anyone has failed to play by the rules, it's the lenders, she says.

"It's not the people who took out this debt, it's the people who gave it to them who weren't playing by the rules through irresponsible underwriting."

Do the right thing
Even if bad behavior is being rewarded, there are compelling reasons to play by the rules, according to Bruce Weinstein.

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