I mean.. they did loan the money, with all the associated responsibilities and risks of loaning money. And they did do the work. All the agreements were entered voluntarily, so what's the fault here?
Changing the terms of the contract without explicit approval from both sides is beyond sketchy. At minimum, it's an unapproved amendment and therefore doesn't apply. At worst, it's a new contact that at least one side didn't agree to and therefore doesn't apply. It looks like people agreed without understanding the details.
In this case, I'd wager by lowering the payments, less loans were "risky" and therefore their assets look better. That probably was for the benefit of repackaging those "assets" and/or better guarantees from the Fed.
The banks had already signed up for financing. They didn't need another reason to pull out - because of the changes in interest rates since they signed the deal, they stand to lose hundreds of millions over the life of the loan.
In response to both the posts here, I don't know. It also could be that the banker was full of it. On the other hand, I could imagine a sort of moral hazard situation where someone could take out a loan, let it go into default, and then offer to buy it back at a massive discount.
What's the lender's incentive to do that? Their goal is to extract as much profit as possible from the borrower (even when we're talking about the government as lender).
That makes no sense. A borrower would have incentive to default on the debt, so they can then purchase it at less than face value, effectively causing them to experience a gain and the lender to experience a loss.
The terms and conditions of the debt obligation are known up-front. If the terms of the loan were onerous the borrowers shouldn't have accepted them and declined the loan. Why is poor financial literacy and wishful thinking about future job prospects on borrowers' parts my problem to be left holding the bag for?
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