Lowering loan underwriting standards and raising the amount you'll give out: It's worked out pretty horribly here. But hey, things must be different in the U.K., right?
After all, especially in London, prices just keep going up. They'll likely go up forever, so why not loan people with modest incomes, say, 125% of the price of a property? Why not loosen the standards on "buy-to-let" loans, even though net yield can be as lousy as 3.5%?
Sound reasonable to you? Not to me. And not to the folks at the Financial Times, who pose the question the banks don't want to: What happens if prices stop rising, or actually fall? Who will be left holding the bag? Possibly investors in Bank of Ireland (NYSE:IRE), Lloyds TSB (NYSE:LYG), and Bear Stearns (NYSE:BSC), unless those firms are clever enough to offload all that risk before the bottom falls out.
(Thanks to the ever-vigilant Housing Panic Blog for the pointer.)
Comments? Bring them here.
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Lloyds TSB is an Inside Value recommendation. At the time of publication, Seth Jayson had no positions in any company mentioned here. See his latest blog commentary here. View his stock holdings and Fool profile here. Fool rules are here.
