Subprime loans - surprise loans?

How about lending money to such people who are poor, with no income and with no jobs?
- No way! you might say, they'd never pay me back!

Oh, but there is a catch: lend them money for buying houses. You'd have the houses as collateral. If they couldn't pay you, you'd just have the houses sold, and you'd get your money back.

There would be no risk to you; the risk would be for the poor people only. They would simply loose their houses, if something went wrong.

And as the loans would be risky indeed, the interest should be high, of course: which would mean more interest income to you than with regular house loans: more money to you!

It is sound business, you simply can't loose.


You couldn't loose, while house prises kept rising, and the collaterals were OK. But as the prises turned down, the collaterals no longer cover the loans. And you are now in trouble. You yourself shall loose money, even if you have the houses sold! This is not what you planned: it was the poor people who were supposed to carry the risks!

This just isn't right. It is so wrong!