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Study Shows Banks Receiving Bailout Funds Helped Cause Financial Meltdown Through Subprime Mortgage Lending

May 15, 2009

A new study says bailed-out banks and investment firms actively participated in the subprime lending market, the Los Angeles Times reported May 6. The Center for Public Integrity's study concludes that the problems at bailed-out banks were "self-inflicted wounds" caused by their active participation in the subprime lending market. Many of the banks receiving federal bailout money either owned subprime lenders outright or financed them, the study said -- and subprime loans are believed to be a major contributor to the housing market's crash. Nine of the ten largest subprime lenders were based in Southern California, the newspaper added.

At the height of the housing boom, subprime loans were offered to buyers with bad credit, at high interest rates and without a requirement that the buyers fully disclose their incomes and debts. Banks then bundled the loans and sold them as securities, the article explained. When the homeowners defaulted, those "securitized" loans became the "toxic assets" that put big banks at risk of failing and triggered the Bush Administration's bailout bill. However, the CPI study said, those same bailed-out banks owned or financed 21 of the 25 largest subprime lenders, making them at least partially responsible for their own injuries.

Subprime loans are notorious among Orange loan modification lawyers like us for another reason: They are notorious for being overly complex, expensive and sometimes a vehicle for predatory lending. During the housing boom, banks offered subprime loans to buyers who didn't have the credit or the money for a conventional loan -- or weren't savvy enough to realize they qualified for one. These loans were riskier, but the lenders could pass on that risk by securitizing the loans, allowing them to profit from as many high-risk loans as they could originate. Unfortunately, investors now refuse to modify many of those securitized loans, denying the borrowers a chance to modify and exacerbating the housing crisis.

At Howard Law LLP, we have an active practice in helping homeowners get out of that trap. Our Fullerton mortgage loan modification lawyers represent homeowners facing foreclosure or default who need a loan workout -- but whose lenders have ignored their phone calls or passed them endlessly from voicemail to voicemail. Banks pay attention to our attorneys because we understand clients' legal rights and we're not afraid to enforce them -- in a court of law, if necessary. We have successfully modified many mortgages, including subprime and exotic mortgages, lowering monthly payments permanently so that our clients can stay out of default and stay in their homes.

If you need a loan modification, but your lender refuses to negotiate, Howard Law can help. To set up a free, confidential consultation with our Anaheim loan modification attorneys, please contact us today through our Web site or call 1-800-872-5925.